Business Day

Leading Japanese companies hike wages the most in 26 years

- Tetsushi Kajimoto and Kiyoshi Takenaka

Top Japanese companies agreed to their largest pay increases in more than a quarter century at annual labour talks that wrapped up on Wednesday, heeding, at least for now, Prime Minister Fumio Kishida’s call for higher wages to offset rising living costs.

Workers’ pay has been a casualty of years of sputtering growth in the world’s thirdlarge­st economy. Japanese salaries are virtually unchanged since the late 1990s and now well behind the average for the Organisati­on for Economic Cooperatio­n and Developmen­t (OECD) grouping of rich countries.

Kishida has stepped up his call for better pay as a weak yen and higher commoditie­s prices have driven up import costs, sending inflation to its highest in four decades.

The average wage increase at “shunto” spring wage talks this year was the biggest in about 26 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 biggest 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, adding that he aimed for a nationwide increase in the minimum wage.

A number of Japan’s biggest corporatio­ns — including Toyota Motor and Hitachi — said they had agreed 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 labour confederat­ion had called for a 5% pay hike. This year’s talks marked the first time that all of Japan’s major carmakers had fully accepted union demands, Akihiro Kaneko, president of a group of carmaker unions, said.

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

It is unclear whether the rising 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 Bank of Japan has emphasised the importance of wage growth to steady, manageable inflation. It argues that recent price rises have been from volatile external factors such as higher import costs, rather than improving domestic demand. In the last year, it has been a standout among central banks in keeping to ultralow interest rates. The Japanese economy narrowly averted a recession late in 2022, as consumptio­n remained weak.

“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 now an 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.”

Big companies had been expected to raise wages by about 2.85%, according to a survey by the Japan Economic Research Centre. 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 last year’s 2.6% increase.

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

The government held a joint three-party meeting with labour and management for the first time in eight years on Wednesday as Kishida seeks to create an environmen­t of regular — not just one-off — wage increases.

Every March, more than 300 firms negotiate with their union, following wage pacesetter­s such as Toyota Motor. Japanese unions have tended to settle for relatively meagre pay hikes of about 2% in recent years, as they are inclined to co-operate with management in keeping job security rather than demanding bigger pay rises.

Some analysts are also sceptical 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 past 30 years, far below an average 35% gain among member countries during the same period, OECD data shows.

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