Wage growth in Japan has been sluggish since the 1990s. However, the country is now facing a period of significant change due to two factors. The first is a structural labor shortage brought on by aging population with fewer children. The second is the increasing prevalence of human capital management.

Companies have been addressing the first factor, the structural labor shortage, to some extent by raising wages. However, wage increases are not sustainable unless they are accompanied by labor savings and increased worker productivity through the use of advanced digital technology. Every company must make efforts to bolster its supply infrastructure, including digital transformation (DX), as well as thoroughly review rules and regulations that might hinder the use of advanced technologies and diverse work styles.

Every year, Keidanren compiles regulatory reform requests or proposals from member companies for purposes such as deploying advanced technologies in sectors with severe labor shortages. These reform proposals never run out since technologies and social issues are always evolving. As Chair of the Committee on Administrative Reforms, I would like to carefully listen to the voices of member companies and steadily advance reform efforts.

Turning to the second factor, human capital management, it will be essential to form a virtuous wage-price cycle in order to make progress toward both sustainable growth and the creation of an ample middle class. The key to this process will be to enhance the value-creation capacity of the workforce. Human resources are the source of innovation. Companies must invest in human capital to enhance employee engagement and organizational performance. In my view, human capital stands alongside with environment and human rights issues as a cornerstone of corporate sustainability management.

In this period of change, it is increasingly crucial for companies to not only consider wages based on a single year's business performance, but also to develop a medium and long-term human capital investment plan that is consistent with their management strategies and to disclose the plan both internally and externally. Based on such a plan, companies should review their personnel remuneration structures and business processes; carry out human resource development, personnel assignments, and related measures; and conduct PDCA cycles while considering how their management strategies are progressing. Through these efforts, companies will create a cycle in which human capital investment boosts medium and long-term business performance, leading to sustained improvements in remuneration.

We are at a cornerstone that will decide whether we could break free from the low growth that has persisted for over 30 years and attain sustainable growth. Our success will depend on whether we can maximize the value-creating capacity of our workforce. On behalf of Keidanren and as a business leader, I will make every effort to ensure a successful outcome.