rewrite this title and make it good for SEOJapanese bank Resona says inflation is boosting SME loan demand, pay hikes By Reuters

By Anton Bridge

TOKYO (Reuters) – The return of inflation in Japan is pushing up loan demand from the country’s small and midsize firms for capital investment and digitalisation, the chief executive of Japanese lender Resona Holdings said.

Eight months on from the Bank of Japan’s move to end eight years of negative interest rates, there are also signs that smaller companies are increasingly able to pass on price rises to their customers, Resona CEO Masahiro Minami said in an interview with Reuters last month.

SMEs make up the bulk of Resona’s client base, giving the bank insight into the state of firms that account for most of the employment in the world’s fourth-largest economy.

Smaller firms have long lagged larger companies in raising prices and wages – a central component of the Japanese government and central bank’s hopes to revitalise the economy, but Minami sees signs of change.

“SMEs are heading in the right direction, they are responding to the economic environment to maintain and improve their competitiveness,” Minami said.

Resona is Japan’s fourth-largest banking group by assets.

Resona’s loan balance for SMEs was up 4.9% by the end of September from a year earlier. That compared with just 1.1% growth in the 12 months through September 2023.

These loans are being used for capital expenditure such as for new equipment and digitalisation to offset a lack of staff in an ever tightening labour market.

The greater challenge for smaller firms has been to pass on price rises caused by higher materials and personnel costs to their customers.

“Large companies are more confident about the value of their products,” Minami said. “After 30 years of deflation SMEs still fear their customers will go elsewhere.”

But as expectations of moderate inflation take root this way of thinking is changing, Minami said.

The Japanese government is hoping this will lead to pay rises, which new Prime Minister Shigeru Ishiba has made a top priority.

Last week Ishiba said he would ask companies to bring in significant wage hikes at next year’s labour negotiations and has pledged to raise the average minimum wage by 42% by the end of the decade.

Minami said the broad trend is positive, even if some smaller firms say they will struggle to pay up.

“Even though real wages are trending downwards, little by little SMEs are catching up,” Minami said.