December 18, 2018 / 2:15 AM / 6 months ago

Ex-BOJ deputy governor blames Japan's low inflation on rising labor productivity

FILE PHOTO: Bank of Japan Deputy Governor Hiroshi Nakaso speaks during an interview with Reuters at the BOJ headquarters in Tokyo April 9, 2015. REUTERS/Yuya Shino

TOKYO (Reuters) - An increase in work-force participation and improvements in labor productivity are among key factors keeping Japan’s inflation low, former Bank of Japan Deputy Governor Hiroshi Nakaso said on Tuesday.

Nakaso said Japan’s 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 Japan’s 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 hosted by the International Monetary Fund in Tokyo.

“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 incumbent policymakers, said Japan must take steps to boost labor market mobility and bring in more foreign workers to beat demographic challenges.

An aging population is driving Japanese 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.”

Reporting by Leika Kihara; Editing by Chang-Ran Kim & Shri Navaratnam

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