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November 19, 2024


 

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BUSINESS


WORSENING CORPORATE MOOD AND BANKRUPTCIES CLOUD BOJ'S RATE HIKE PATH

A man walks past the Bank of Japan headquarters in Tokyo on Oct. 30. | AFP-JIJI
By Leika Kihara
Reuters
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Nov 11, 2024
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Japan's service-sector sentiment worsened and bankruptcy cases rose in October,
data showed Monday, casting doubt on the central bank's view the country is on
track to meet its 2% inflation target driven by robust domestic demand.

The findings align with concerns voiced by some Bank of Japan board members at
last month's policy meeting that intensifying labor shortages could constrain
growth, rather than lead to higher wages.





"There's a risk Japan's economic growth will slow if labor supply constraints
force firms to shrink operations by withdrawing from low-profit businesses," one
member was quoted as saying in a summary of opinions released Monday.

An index measuring sentiment among service-sector firms like taxi drivers and
restaurants stood at 47.5 in October, down 0.3 point from the previous month to
mark the second straight month of declines, the government's "economy watchers"
showed.

A gauge of firms' sentiment on the economic outlook also fell 1.4 points to
48.3, worsening for the second month and highlighting the fragility of Japan's
recovery.

"Corporate sentiment remained strong for quite a long time but seems to be
worsening somewhat, which is a concern," said Nobuyasu Atago, chief economist at
Rakuten Securities Economic Research Institute.

"It raises some questions as to whether rising wages will boost consumption and
lift service-sector sentiment, as the BOJ predicts," he said.

The "economy watchers" survey is closely watched by markets as a leading
indicator of household spending and the broader economy, due to the polled
firms' proximity to consumers.

Corporate bankruptcy cases are also creeping up as rising raw material costs and
labor shortages squeeze profits particularly for small and midsize firms.

The number of companies that went bankrupt hit 925 in October, the second
largest this year following 1,016 cases in May and up 17.1% from year-before
levels, a survey by private think tank Teikoku Databank showed on Monday.

Of the total, a record 287 cases were caused by trouble hiring staff, the survey
showed, a sign some firms were struggling to earn enough profits to pay higher
wages.

The BOJ exited a radical stimulus program in March and raised its short-term
policy rate to 0.25% in July.

BOJ Gov. Kazuo Ueda has said the central bank will continue to raise rates if
robust domestic demand, backed by higher wages, keep inflation sustainably
around its 2% target.


KEYWORDS

BOJ(https://www.japantimes.co.jp/tag/boj), Japanese
economy(https://www.japantimes.co.jp/tag/japanese-economy), economic
indicators(https://www.japantimes.co.jp/tag/economic-indicators),
BANKRUPTCY(https://www.japantimes.co.jp/tag/bankruptcy)
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