Japan Lobby Group for Small Firms Urges Government Action on Inflation

A business lobby representing small and midsize firms in Japan urged the government to address inflation, including the yen's weakness, stating that this is essential to achieving real wage growth, its chief said on Tuesday.

The organization highlighted that momentum for wage hikes this year has been very strong among member firms, driven by labor shortages that are forcing many companies to raise pay. However, it emphasized that inflation must be contained within the pace of wage increases to achieve real wage growth.

Japan's core consumer prices rose 3% in November from a year earlier, remaining above the central bank's 2% target for a 44th month. This persistent inflationary pressure has prompted calls for government intervention to stabilize the economic environment.

Why Did This Happen?

Inflation in Japan has been fueled by multiple factors, including the weak yen, which has increased import costs and contributed to higher consumer prices. Small and medium-sized firms, in particular, are struggling with rising material costs due to the yen's depreciation.

According to Ken Kobayashi, chairman of the Japan Chamber of Commerce and Industry, the government and the Bank of Japan need to eliminate the sense of helplessness among small business owners who rely heavily on imported materials.

How Did Markets React?

The government's approach to managing inflation and the yen's value is critical for maintaining investor confidence in Japan's fiscal stability. As part of a broader fiscal blueprint, the government is expected to release a new long-term strategy by June.

Wakatabe, a former deputy governor of the Bank of Japan and a member of a key government panel, suggested that the central bank should anchor long-term inflation expectations around 2%. This proposal reflects a growing consensus among policymakers that the BOJ needs to balance inflation control with economic growth.

What Are Analysts Watching Next?

Analysts are closely monitoring how the government will address the challenges posed by rising bond yields and the potential impact on Japan's public debt. Wakatabe's remarks underscore the importance of maintaining market trust in Japan's financial system, especially as the country faces risks unique to an era of inflation.

The government's ability to stabilize inflation while promoting wage growth will be a key factor in determining the success of its economic strategy. With real wages turning positive in 2026, as predicted by Wakatabe, the focus will remain on balancing monetary policy with fiscal discipline.