Japanese businesses to raise wages, but many short of PM’s target

Abe piles pressure on companies to raise wages by 3 per cent
By Tetsushi Kajimoto
|payroll-reporter.com|Last Updated: 03/16/2018
Japan PM
Japan's Prime Minister Shinzo Abe gestures as he makes a speech at an opening of a new session of parliament in Tokyo, Jan. 22. REUTERS/Kim Kyung-Hoon

TOKYO (Reuters) — Big Japanese companies agreed on Wednesday to raise wages for a fifth year but many are expected to fall short of meeting Prime Minister Shinzo Abe's three per cent goal, adding to doubts the central bank will be able to hit its inflation target.

The results of the "shunto" spring wage negotiations between corporate management and unions, announced by the big automobile and electronics companies, set the tone for wage hikes across the nation and could give hints about future consumer spending.

Abe has been campaigning for a three per cent gain to spur consumption and banish the deflation that has dogged Japan's economy for nearly two decades.

Bank of Japan Governor Haruhiko Kuroda has also urged a similar increase to nudge up inflation to the BOJ's long elusive two per cent target.

Wage growth is expected to accelerate given bigger bonuses, and rising pay at small firms and for part timers. Still, it won't reach Abe's target or be strong enough to clear hurdles for the central bank to start scaling back its massive stimulus program, some analysts say.

"The Bank of Japan won't move this year. It will probably wait to see results of next year's shunto," said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

Even though many Japanese firms are sitting on piles of cash from healthy earnings, and the country's labour market is increasingly tight, companies are wary of boosting base salaries because that commits them to higher fixed personnel costs. Instead, they prefer one-off bonuses and other benefits.

Toyota, considered a bellwether in the country's annual wage negotiations, agreed to raise monthly base salaries by more than 1,300 yen (C$15.80) for the coming year, more than last year but below the union's demand for 3,000 yen.

Including increases in base salary for full-time employees and pay for contract workers, Japan's largest automaker said that overall monthly payment for all union members would increase by an average 3.3 per cent.

Honda and Hitachi said they would raise annual salaries — including bonuses and other benefits — by more than three per cent and 4.1 per cent, respectively.

"We have agreed to the increase as we would like to contribute to the country's economic development and its manufacturing culture," Toyota senior managing officer Tatsuro Ueda told reporters in Toyota City, central Japan.

GOVERNMENT PRESSURE

Over the past four years, major companies agreed to raise wages about two per cent each spring. The bulk of that — about 1.8 percentage points — comes automatically under Japan's seniority-based employment system. Anything beyond that is a hike in "base pay."

Several economists have forecast major companies would agree to base pay hikes of 0.5-0.6 per cent, which with the seniority-based automatic salary rise would bring wage growth in the vicinity of 2015's 2.38 per cent rise, which was a 17-year high.

"Wage hikes are regaining momentum, but they are still shy of reaching three per cent at most companies," said Hisashi Yamada, director at Japan Research Institute.

"I doubt companies can sustain wage hikes without government pressure. They must steadily raise wages on their own initiative to revamp business structure and improve their ability to grow."

Chief Cabinet Secretary Yoshihide Suga said he expects the tide of wage hikes reflecting better corporate earnings will spread to non-regular workers and small firms so that deflation will end.

"We will strive to achieve virtuous cycle of growth and distribution through work-style reform," Suga told reporters.

However, wage gains could be offset by cuts in overtime pay as companies come under pressure from the government to curb Japan's notoriously long overtime hours.

Rises in deductions for social security to service the rapidly aging population could also cut into wage gains, analysts say.

Japan's unions tend not to be as aggressive in pressing their demands as those in the West because they attach greater importance to job security and maintain a sense of corporate loyalty.

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