TOKYO: Japan’s most powerful business lobby, Keidanren, agreed on Thursday to encourage companies to allow subcontractors to pass on higher costs as the government tries to relieve a squeeze on profit margins at small firms.
Rising input costs have become a contentious issue for subcontractors because many complain clients are refusing to pay more for parts and materials even as manufacturing costs rise.
Japanese Prime Minister Shinzo Abe is trying to combat criticism that his economic policies have left behind the country’s army of small- and medium-sized enterprises, which rely on subcontracting work from blue chip firms.
The government’s direct appeals to Japan’s main business lobby, however, raise concerns that regular intervention in the private sector may not produce the intended results and lift economic growth.
“I am not going to criticise the government, but at the end of the day there is a limit to the government’s ability to influence decision making,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.
The agreement came out of a regular meeting with cabinet ministers, business lobbies and labour unions that has become the launch pad for some of Abe’s most important economic initiatives.
At the end of the meeting, Abe said he felt the agreement would make it easier for small firms to raise wages, a step he considers necessary for the economy to improve.
Keidanren will encourage its member companies to agree with their subcontractors in advance how to pass on higher input costs and share the burden from exchange rate fluctuations as the weak yen pushes up import costs.
