The Japan Business Federation, Keidanren, is set to discuss the potential negative impact of the weak yen on the economy at a meeting on December 4, with Chairman Masakazu Tora and vice chairs in attendance.
According to local newspaper Yomiuri, citing unnamed sources, growing concerns among Keidanren members prompted the organization to schedule an informal closed executive meeting.
It is unusual for the organization, which consists of big automakers and electronics firms, to discuss such a topic. It has generally viewed a weak yen favorably, with the currency believed to have been bolstering bolster Japan's export competitiveness since the postwar economic boom.
This means the meeting marks a shift in the organization's stance, potentially shaping Keidanren's future policy proposals.
The yen's rapid depreciation since April last year has highlighted its detrimental effects on the Japanese economy. It even plunged to a low of ¥151 against the dollar. This exacerbated import costs, driving Japan's inflation significantly beyond the two percent target.
Japan's heavy reliance on energy imports has rendered it vulnerable to the surge in energy prices. It places a disproportionate strain on the profitability of small and medium-sized enterprises (SMEs).
At the same time, the escalating costs have outpaced wage increases, eroding consumer purchasing power.
The Bank of Japan is consistently adjusting its monetary easing measures based on economic and price conditions. However, a Keidanren vice chair criticized the pace as too slow.
Exiting ultra-loose monetary policy
The meeting might amplify business sector demands for the Bank of Japan (BoJ) to cease ultra-low interest rates, which some believe is driving the yen's depreciation, according to the newspaper.
However, BoJ board member Seiji Adachi said it is too soon to discuss an exit from the ultra-loose monetary policy. He emphasized that the BoJ needed to wait for clear indications of simultaneous increases in prices and wages to sustainably maintain inflation at its two percent target.
"While there may be early signs such positive wage-inflation cycle is emerging, conditions aren't sufficient yet," Adachi said in a speech.
Adachi cited persistent global economic risks, such as China's slow growth and the after-effect of aggressive U.S. interest rate hikes, and uncertainty about next year's wage prospects.
Although some large corporations continue raising wages, numerous smaller firms in regional areas express concerns about their ability to do so due to challenging business conditions.
BoJ data on Monday showed that Japan's services producer price index (SPPI) increased 2.3 percent in October compared to the previous year, surpassing the revised 2.0 percent growth in September.
Information and communication, machinery repair, and worker dispatching businesses saw their fees climb compared to the previous year. Meanwhile, hotel fees soared 49.9 percent due to a surge in inbound tourism.
Inflation has surpassed the two percent target for over a year now. This has placed immense pressure on companies to provide employees with substantial pay raises to retain and attract top talent.
According to BoJ Governor Kazuo Ueda, the ongoing inflation primarily stems from cost-push factors. The economy must transition to a more demand-driven price increase supported by higher wages before the bank can discontinue its ultra-loose monetary policy.
The remarks underscore the ambiguity surrounding the timeline for the BoJ's potential withdrawal from its stimulus measures. This includes a negative short-term interest rate and a zero percent target for the 10-year bond yield under the yield curve control (YCC) framework.
The market now widely expects the BoJ to abandon negative rates and YCC in the coming year, a Reuters poll in October revealed. Some even anticipate a move as early as January.