Japan Inc delivers largest wage increases in decades

TOKYO, Japan – Top Japanese companies offered their largest pay increases in a quarter century at annual labor talks which wrapped up on Wednesday, March 15, heeding, at least for now, Prime Minister Fumio Kishida’s calls for higher wages to counter rising living costs.

Worker pay has been one casualty of years of sputtering growth in the world’s third largest economy since the late 1990s, leaving Japanese salaries well behind the Organisation for Economic Co-operation and Development (OECD) average.

But now a weak yen and rising commodities prices have driven up import costs and pushed inflation to the highest in four decades, prompting Kishida to beat the drum for better pay.

The average wage increase at “shunto” spring wage talks this year was the highest in about 30 years, according to the Keidanren business lobby, which did not give a more exact figure. That put the increase broadly in line with analysts’ expectations for a boost of almost 3%, which would be the highest since 2.9% in 1997.

“This spring marks a turning point for growth and wealth distribution,” Kishida told a meeting with representatives of business lobbies and unions. He also said he aimed for a nationwide increase in the minimum wage.

A number of Japan’s biggest corporations – including Toyota Motor Corporation and Hitachi Ltd – said they had agreed fully to the requested increases from unions, results that were widely flagged in recent weeks.

“Given the surge in prices, employee expectations were running higher than most years,” Hitachi vice president Kenichi Tanaka told a briefing.

The Rengo umbrella labor group had called for a 5% pay hike.

This year’s talks marked the first time that all of Japan’s major automakers had fully accepted union demands, Akihiro Kaneko, the president of an umbrella group of automaker unions, said.

‘I’m so jealous’

But for workers at smaller companies – which make up almost 70% of Japan’s workforce – the outlook was less rosy. Those businesses have often struggled to pass on rising costs to their customers.

“I’m so jealous of workers at companies like Toyota,” said Takehiro Kato, who works at a truck maker where wages have hardly risen. His employer recently paid out a one-time allowance to help counter inflation, but that’s it.

“You can’t count on money like that, because you don’t know when you’ll get another such payment again,” he said.

It remains to be seen whether the higher wage trend will be sustainable, let alone create the “virtuous cycle” of stronger economic growth and 2% inflation long sought by Japan’s central bank.

The central bank attaches great importance to wage growth for achieving sustainable inflation, arguing that recent price rises have been from external factors such as higher import costs, rather than improving domestic demand.

In the last year, it has been a standout among major central banks in keeping to ultra-low interest rates.

Japan’s economy narrowly averted a recession in the final months of 2022 amid frail consumption.

Temporary reaction

“Rather than a change in the stance of companies, this is more a case of a temporary reaction to unexpected and historically high prices,” said Takahide Kiuchi, a former Bank of Japan board member who is now executive economist at Nomura Research Institute.

“It is unlikely that wage hikes will just continue next year and after regardless of what happens with prices.”

Ahead of the talks, big companies had been expected to raise wages by around 2.85%, according to a survey of 33 economists taken by Japan Economic Research Center. The talks cover both base and bonus pay.

Hitachi said on Wednesday it would increase overall wages by an average of 3.9%, compared to a 2.6% increase a year earlier.

“We must not make this wage hike just a one-off thing,” said Masashi Jimbo, president of the Japanese Electrical Electronic & Information Union.

Kishida’s government will likely hold a joint three-party meeting with labor and management for the first time in eight years on Wednesday to ensure structural wage hikes.

Follow the pace-setter

Every March, more than 300 major firms negotiate with their union following wage pace-setters such as Toyota.

Unions have historically tended to settle for relatively meager pay hikes of around 2% in recent years, as they are inclined to cooperate with management in keeping job security rather than demanding bigger pay rises.

Some analysts are also skeptical that unions will be as aggressive in demanding higher pay in coming years if inflation eases, as it is expected to from the middle of the year.

Real wages fell in January at the fastest pace since May 2014 when the sales tax was raised to 8% from 5%.

Japan’s wages have grown just about 5% over the last 30 years, far below an average 35% gain among member countries during the same period, OECD data shows. – Rappler.com