MNI: BOJ Kuroda: Japan To Overcome Labor Shortages, Slow Wages

     TOKYO (MNI) - Japanese firms are likely to overcome potentially

growth-choking labor shortages by investing in innovation and human resources in

the current modest economic recovery phase, Bank of Japan Governor Haruhiko

Kuroda said Tuesday.

     In a speech to the Keidanren business lobby, Kuroda also repeated his

mantra that now that the economy is emerging from years of deflation, it is

better for companies' competiveness to become more positive in their outlook,

investing in equipment and paying decent salaries to quality workers.

     The governor said he was aware that some firms were declining orders from

customers due to labor shortages and others were concerned that the acute labor

shortages might constrain economic growth.

     "However, I do not share this pessimistic view," he said. "Past experience

shows that in the process of overcoming labor shortages, Japan's economy boosted

its growth potential through individual firms' efforts to raise their

productivity."

     Japan has repeatedly proved that something that initially was considered as

a constraint on economic growth turned out to be something that led the economy

into a new phase, he said.

     Japanese firms survived the two global oil crises of the 1970s by making

the economy highly energy efficient, he said, adding they also successfully

coped with the power supply shortages and supply chain breakdown caused by the

2011 earthquake and tsunami in northeastern Japan by increasing in-house power

generation facilities and rebuilding or relocating production sites.

     "While many firms have already started to address labor shortages through

fixed investment and other measures, it is important for firms to take full

advantage of business opportunities by staying ahead of their competitors, with

a view to deploying their available human resources effectively," Kuroda said.

     "In order for firms to further raise their growth potential, they also need

to secure talented human capital by paying the appropriate wages."

     Some firms have shaken off the deflationary mindset and have proactively

embarked on new initiatives, he said.

     "When more firms follow suit, this will give rise to a virtuous cycle in

the economy as a whole, with prices rising moderately as wages and productivity

increase, leading to sustainable economic growth," he projected.

     Kuroda repeated the recent assessment of the central bank that wage and

price hikes are relatively sluggish compared with the past patterns but that the

mechanism of raising wages is working.

     "It cannot be denied that, relative to the strength of the economy and

degree of labor market tightening, the pace of increase in wages is more

sluggish than in past recovery phases," he said.

     He also repeated that there is still a long way to go before the bank can

achieve its 2% price stability target.

     But Kuroda noted that during the current economic recovery, "we have seen

the mechanism in place by which labor shortages exert upward pressure on wages,

which encourages firms to raise sales prices and work toward raising labor

productivity."

     "Going forward, supported by highly accommodative financial conditions, the

economy is likely to continue expanding firmly with labor market conditions

tightening further," he said.

     "It is expected that this will reinforce the mechanism by which prices and

labor productivity rise along with wages, encouraging households and firms to

increase expenditures."

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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