Something may be stirring deep within Japan's labor market. The country's aging and shrinking population is traditionally thought of as a deflationary factor, driving down potential growth. Yet after years of resisting wage hikes, companies are starting to recognize the need to lock in staff before they literally disappear. In its most recent minutes, the Bank of Japan used an Orwellian phrase to describe the trend: "securing the labor force."
The unemployment rate is 2.8 percent and declining steadily as Japan goes through something of a growth streak. At the same time, baby boomers are approaching retirement, while the country remains resistant to any large-scale immigration. An influx of women and older workers has compensated for this somewhat. But the pool of workers appears close to being depleted.
Japan's demographic challenges aren't new. And despite low unemployment, wage growth has remained sluggish — only around 0.6 percent. That's hampered the BOJ's efforts to drive up inflation to 2 percent, a target that seems increasingly elusive.