An increase in workforce participation and improvements in labor productivity are among key factors keeping inflation low, former Bank of Japan Deputy Gov. Hiroshi Nakaso said Tuesday.
He said the aging population is driving companies to beat labor shortages by automating operations and abandoning the tradition of offering high-quality services free of charge.
While such moves are boosting labor productivity and helping make up for an intensifying workforce shortage, they are putting downward pressure on inflation in the short run, he added.
“Labor productivity in Japan … is improving quite steadily in recent years. Meanwhile, real wages are also rising but not catching up with the improvement in labor productivity,” Nakaso said in a seminar in Tokyo hosted by the International Monetary Fund.
“Along with increased labor-force participation, improvement in labor productivity is an important factor underlying Japan’s seemingly low inflation,” he said.
Annual core consumer inflation hit 1.0 percent in October, still distant from the BOJ’s 2 percent target, as companies remain wary of raising wages despite a tightening job market.
Nakaso, who retains close contact with policymakers, said Japan must take steps to boost labor market mobility and bring in more foreign workers to beat demographic challenges.
The aging population is driving companies to embark on measures to improve labor productivity, such as streamlining operations, Nakaso said.
“This is proving to be the ultimate growth strategy,” he said. “Population aging in Japan, in this regard, is positive rather than negative in improving productivity.”