Policy Uncertainty and Business

This paper, using data from an original survey of Japanese listed companies, presents empirical findings on subjective uncertainties over major economic variables and economic policies and the effects of these uncertainties on business operation. A large number of Japanese companies now expect positive growth in sales and a moderate increase in the inflation rate in the medium term, but perceive uncertainty over these expectations. The companies feel uncertainty over the future course of several economic policies, such as the international trade policy and the social security system. Uncertainty over the tax system, trade policy, and environmental policy has serious effects on the managerial decision of the companies, especially on equipment investment and overseas operation. Among non-manufacturing companies, uncertainty over the social security system and labor market regulations affects employee hiring and organizational restructuring. In order to achieve economic growth by promoting forward-looking investments, it is essential to enhance the predictability of the fundamental economic policies and institutions.

The English version of this paper is 13-E-076.

Forthcoming: Morikawa, Masayuki. "What Types of Policy Uncertainties Matter for Business?" Pacific Economic Review.