Kantaro Komiya, Daniel Leussink

TOKYO (Reuters), Japan’s policy of raising wages is unlikely to create a virtuous cycle that supports the economy, according to nearly 80% of economists in a Reuters survey.

According to the poll, third largest economy in the world grew faster than expected during the last quarter of 2021. This was due to consumer demand recovering after a severe coronavirus pandemic hit in July and September.

As part of Prime Minister Fumio Kishida’s commitment to pushing for a wider distribution of wealth, he has introduced policies to raise wages. He sees this as crucial for helping increase household incomes and the economy’s overall pandemic recovery.

However, most analysts doubted that the government would succeed with its policies.

It was deemed unlikely by 19 of the 34 economists who were polled. A further eight economists voted “very unlikely”, in stark contrast to seven who thought it was probable and none who opted for “very possible”.

“Even if wages rise, Japanese people would pass those on to savings as long as their outlook on Japan’s future is grim,” said Hiroshi Namioka, chief strategist and fund manager at T&D Asset Management.

Kishida took office in October and has been encouraging Japanese businesses whose earnings have risen to pre-pandemic levels of growth to hike their wages by 3% to 5%.

However, such measures might fall on deaf ears because small firms can’t afford to pay corporate taxes and are therefore more profitable than larger companies, according to two poll analysts.

STRONGER REBOUND

Based on the median projection of 40 economists, Japan’s GDP (gross domestic product) will increase 6.5% per year in 2021.

The economists decreased their estimate for GDP growth to 4.5% in this quarter, down from 4.9% previously.

Analysts believe that the rapid spread of Omicron COVID-19 could have a negative impact on Japan’s recovery. However, the severity of any curbs imposed by the government will determine how serious it is.

The poll found that core consumer price inflation (which excludes fresh food but also includes energy costs) will reach 1.1% in the next quarter, and then slowly slow down thereafter.

The forecast for annual core inflation in fiscal 2022 stands at 0.9%. This is slightly lower than the 0.8% polled last month.

At a meeting on Tuesday and Wednesday, the Bank of Japan will raise its inflation forecast. It is expected that it will also maintain its extremely loose monetary policy.

Reuters polled no economists to predict any change in BOJ policy until the second half.

Nearly 95% said that the next move of the central bank would be to unwind its extremely-easy monetary policies, although most don’t think it will happen before 2023.

(For more stories, see the Reuters economic poll: