Pulling Japan out of a trap of low productivity is “the number one goal” of the central bank, according to one of its most senior figures.
The Deputy Governor of the Bank of Japan Mr Hiroshi Nakaso told a gathering in London that Japan continues to lag behind most developed countries in terms of productivity and that this is a major concern to the bank and to the government.
The Bank of Japan regards productivity as as an important of way of assessing the efficiency of businesses.
It therefore measures the hours people work and tries to judge the economic value of their efforts.
The labour shortage, which is caused by an ageing and shrinking population, has created a very low unemployment rate in Japan of only about two percent. As a result, companies often struggle to find enough candidates to fill their job vacancies.
But Mr Nakaso claimed that “the current serious labour shortage could be a catalyst for improved productivity” and that therefore there “we have a golden opportunity to upgrade Japan’s economy.”
“We have a golden opportunity to upgrade Japan’s economy.” Hiroshi Nakaso, Deputy Governor, Bank of Japan
Mr Nakaso hopes employers will respond by offering higher wages and will adopt a more efficient and productive approach to work.
He cited the example of a trucking company which has recently raised wages and put up prices for its customers. He said such measures would help nudge inflation towards the Bank of Japan’s target of two percent.
But he acknowledged that such situations were relatively rare, even though “improving productivity is precisely what the third arrow of Abenomics is aiming for.”
White collar challenge
Speaking to an event hosted by the Japan Society at the Guildhall in the City of London, Mr Nakaso claimed that Japanese factories are among the most efficient in the world, so the productivity challenge is most acute in the non-manufacturing sector “which employs white collar workers like me.”
Some economists have suggested that Japan’s productivity would rise if if brought more women and older people into the workforce, or opened the door to more immigrant labour. However, Mr Nakaso said that it is “unrealistic” to see those measures as a complete solution to the problem. “Even if we did all those things, we would not be able to achieve the 2.9% increase in productivity we need to achieve our goal of two percent GDP growth,” he said.
Jobs for life
He said another challenge is the lack of mobility within Japan’s workforce, which makes many people reluctant to change their jobs. This is a legacy of the jobs-for- life culture which developed during Japan’s post-war boom years.
“Long term contracts between companies and workers prevent mobility,” said Mr Nakaso. He noted that greater labour mobility leads to greater productivity in many developed countries and it can help with the spread of new ideas, working practices and technology.
He said companies respond to the labour shortage in a variety of ways, such as reducing their opening hours, automating payment systems or being less generous in providing benefits to customers which are not profitable.
A new dawn
Mr Nakaso finished with offered an upbeat view of contemporary Japan which he said runs counter to the gloomy impression often left by the media. He cited the current tourist boom, an increase in leisure time and the rise in life expentancy.
He also said that that there are now more than 200 Michelin starred restaurants in Tokyo.
“The public perception is based on old statistics,” said Mr Nakaso. “I admit that there have been false dawns in the past but this time we believe that after a long night, the new dawn is near,” he said.