Japans big firms set to offer biggest pay rises in decades

TOKYO (Reuters) – Big Japanese firms are set to offer the largest pay rises in a quarter century this year driven by inflation at 41-year high, in a sign that cash-rich firms may be warming to Prime Minister Fumio Kishidas calls to boost consumption through higher wages.

As annual labour talks dubbed “shunto”, Japanese for “spring offensive”, wrap up at many blue-chips on Wednesday, positive signs are emerging at Japan Inc may be ready to boost wages to a level that can at least offset high living costs amid surging import inflation.

Major firms are expected to raise wages by 2.85%, according to a survey of 33 economists taken by Japan Economic Research Center (JERC), far above last years 2.2% and the fastest gain since 1997 when Japan slid into 15 years of deflation.

Given that consumer inflation, at 4.1%, outpace wage hikes, pay rises of 3% or more need to continue in the coming years to sustain price stability at 2%, said Hisashi Yamada, senior economist at Japan Research Institute.

“Average wage hikes that are consistent with the central banks 2% price target are 3% which can be met this year albeit temporarily,” Yamada said.

Takahide Kiuchi, a former Bank of Japan board member who is now executive economist at Nomura Research Institute, said base pay rises hold the key in determining how wages may affect prices.

The JERC survey showed that excluding seniority-based pay, base compensation that boosts fixed labour costs accounts for just 1.08%.

“We need to focus on base pay. It will likely be a little above 1%, still way lower than price increase,” Kiuchi said.

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

FOLLOW THE PACE-SETTER

There are already some encouraging signs.

Workers from Japan‘s largest group of trade unions last week struck early agreements for hefty wage hikes. Other unions from Toyota, the world’s No. 1 automaker, and Honda, have also secured their biggest pay rises in decades.

Whats unique about shunto in Japan is that every March, more than 300 major firms capitalised at 1 billion yen or more and with 1,000 or more workers, negotiate with their union following wages pace-setters such as Toyota Motor Corp.

Company unionists have historically tended to settle for relatively meagre pay hikes around 2% in recent years, as unions are inclined to cooperate with management in keeping job security rather than aggressively demanding pay rises.

It remains unclear, however, whether the wave of wage hikes could spread to small firms, which employ seven out of 10 workers but struggle to pass on costs to their bigger clients at the end of supply chains.

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%.

Japans 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.

(Reporting by Tetsushi Kajimoto; Editing by Sam Holmes)