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Nov 25, 2:31 AM EST

Japan central bank gov. says companies must raise wages, investment, says hoarding cash costly

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TOKYO (AP) -- Japan's central bank governor is urging companies to raise wages and investment to aid the country's efforts to overcome deflation.

Haruhiko Kuroda told a group of businessmen in central Japan on Tuesday that the central bank was committed to achieving a target of 2 percent inflation and that he expects companies to make their decisions based on that plan.

Kuroda announced last month an expansion of the central bank's asset purchases, to inject trillions more yen into the economy, Japan slipped into recession last quarter, raising doubts over the stimulus-led strategy for restoring sustainable growth championed by Prime Minister Shinzo Abe.

Profits of Japanese corporations have soared thanks to the central bank's monetary expansion, which has weakened the yen. But wages for many workers have remained flat or even fallen, while prices have risen.

Weak purchasing power is seen as one reason why consumer demand has fallen and remained weak after a sales tax hike in April, from 5 percent to 8 percent. After more than two decades of stagnation, many Japanese households have meager savings and little leeway in their spending.

"I have great interest in developments in wages and price settings through spring of next year," Kuroda told the business people in Nagoya, the heart of Japan's auto and aviation industries.

Last week, Abe postponed a planned tax hike for next year, putting it off to 2017 and calling an election to seek a renewed mandate for his policies. The delay in the tax hike is widely seen in Japan as backtracking on Abe's pledges to do more to reduce the government debt, which is more than twice the size of the economy.

Kuroda suggested Japanese corporations might even restore some of the domestic production that has languished in the past two decades as manufacturers have shifted factories overseas to cut costs and be closer to fast-growing markets in developing countries.

Given Japan's ultra-low interest rates and bond yields, "hoarding cash and deposits will become costly," Kuroda said, exhorting corporate leaders to share the benefits they have reaped from the yen's depreciation through the whole economy.

"As a corporate strategy, using their profits in a more productive manner is imperative," he said. "Among others, investment in facilities and human resources, as well as reestablishment of supply chains including subcontractors are possible options."

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