Japanese businesses more upbeat, but worried about labor shortage: BOJ survey

Japanese companies' concerns about the domestic economy remaining stagnant -- which were prevalent until mid-2016 -- appear to be fading, according to the latest Bank of Japan (BOJ) March 2017 Tankan survey. This change in sentiment seems to have stemmed from factors such as the recovery in the global economy as well as a depreciation of the yen.

However, at the same time, the survey also found that Japanese businesses are not overly optimistic about the future -- owing to factors including uncertainties surrounding the Trump administration's policy management, as well as a labor shortage in Japan.

With regard to the situation in the U.S., there have been some benefits to Japanese exporters since Donald Trump won the presidential election in November 2016 -- owing to the yen's depreciation. However, looking ahead, Japanese businesses are aware that the U.S. may impose protectionist trade barriers against its trading partners.

Furthermore, there are also concerns about the political situation in Europe -- specifically on issues such as the forthcoming French presidential election. The above factors explain why on the one hand, companies sense an element of recovery, but on the other, they are cautious about the future. This has been reflected by the worsening in the diffusion index among respondents' in this latest Tankan survey.

Another reason behind the doubt among Japanese businesses is the labor shortage in Japan. With regard to the diffusion index for "judgment on current employment conditions," many companies -- of various different sizes -- replied to say there is a shortage of manpower. Consequently, the diffusion index in this category hit a level that has not been seen since the period immediately after the bubble economy, about 25 years ago.

The issue of a labor shortage in Japan is serious, with companies such as parcel delivery giant Yamato Transport Co. looking into ways of limiting the total volume of parcels it handles. Furthermore, this problem is particularly serious among non-manufacturing companies, as well as small- and medium-sized enterprises.

To an extent, a labor shortage has the benefit of triggering increased investment in labor-saving technology, but overall there are concerns that the lack of manpower will be detrimental to future economic growth.