Uncertainty about the future is hindering a full-scale economic recovery propelled by domestic demand, although export-led economic expansion is steadily continuing, a quarterly business outlook survey by the Bank of Japan (BOJ) shows.
The results of the central bank's latest "tankan" survey, which were released on Dec. 15, show the diffusion index (DI) representing business sentiment among major manufacturers has continued to improve. However, the DI among non-manufacturers that rely largely on domestic demand has remained at the same level for two consecutive quarters.
Despite increasing costs due to a shortage of workers and rises in the prices of raw materials, the number of companies that answered they had raised the prices of their products and services was almost equal to that of firms which replied they had lowered their prices. This shows that companies are finding it difficult to increase prices in the face of consumers' tendency to remain thrifty.
The government is urging companies to drastically raise wages for their employees to achieve a virtuous cycle of income growth, thereby pushing up consumer spending.
However, the latest tankan survey demonstrates that it is no easy task to improve companies' business sentiment unless the government presents a clear growth strategy and dispels the public's concerns about the sustainability of the country's social security system.