Now that the Abe administration has decided to raise the consumption tax rate from the current 5 percent to 8 percent from April 2014, it is all the more important for the government and businesses to make efforts to improve employment prospects for workers and to raise their wages.
The Bank of Japan hopes to achieve 2 percent inflation in two years. But an inflation target should not be the ultimate goal. The government and the central bank should realize that Japan's long run of deflation has been caused by the downward wage trend.
At first glance, the Abe administration's economic policy appears to be working. According to the BOJ's tankan economic survey for September, the diffusion index (DI) for major manufacturers for September was plus-12, up eight points from the plus-4 for June. The DI is attained by subtracting the percentage of companies with poor business prospects from the percentage of those with good prospects. The DI figure is nearing the plus-19 registered in December 2007 — before the Lehman Brothers shock the next fall.