TOKYO (Reuters) – Japan’s top employers are set to follow bumper wage increases this year with another round in 2024, which is expected to help lift household spending and give the central bank the conditions it needs to finally roll back massive monetary stimulus. .
Early indications from businesses, unions and economists suggest that the labor and cost pressures that paved the way for this year’s pay rise – the largest in more than three decades – will continue ahead of key pay talks in the spring next year.
The head of major beverage maker Suntory Holdings Ltd, for example, plans to offer 7,000 employees average monthly raises of 7% in 2024 for the second year in a row, to retain talent in a tight labor market and offset rising inflation.
Meiji Yasuda Life Insurance Company intends to raise the annual wage by 7% on average for about 10,000 employees starting next April, while electronics retailer Bic Camera is set to raise the wages of 4,600 full-time employees by up to 16%.
“What is happening is a major paradigm shift away from deflation and toward inflation,” Suntory Holdings CEO Takeshi Niinami, who is also a member of Prime Minister Fumio Kishida’s top economic advisory council, told Reuters.
“Given the rapidly changing landscape, I think those who move quickly (with increasing wages) will have to become competitive.”
The announcements come as Kishida pressures companies to raise wages to compensate for the pain families are experiencing from the rising cost of living.
Successive annual wage increases would provide Bank of Japan Governor Kazuo Ueda with one of the preconditions he needs to dismantle the extreme monetary stimulus of the past decade: sustained wage growth.
“A combination of a chronic labor crisis and stubborn inflation will result in next year’s wage negotiations resulting in the same or even higher pay than this year,” said Hisashi Yamada, a labor expert and professor at Hosei University.
Average wages have barely risen in Japan over the past 30 years or so, as chronic deflation and the prospect of prolonged low growth have discouraged companies from raising wages, OECD data show.
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That tide began to turn after supply constraints caused by the pandemic and the Ukrainian war led to sharp rises in raw material prices, forcing companies to pass on higher costs to consumers.
With inflation remaining above the Bank of Japan’s 2% target for more than a year, companies have faced unprecedented pressure to compensate employees with pay increases to retain and attract talent.
This year’s request by Ringo Union, the largest union federation in Japan, to raise wages by about 5%, led to an average wage rise of 3.58% among major companies. Rengo said it would demand a pay rise of “5% or higher” next year.
Another major union, UA Zensen, which covers service sector workers and part-time workers, said it would demand a 6% pay rise next year, in line with this year’s demand.
Six out of ten economists in a Reuters poll expect that wage increases for large companies in 2024 will exceed this year.
“A combination of inflation, a tight labor market and corporate earnings will provide tailwinds to continue the momentum to raise wages,” said Atsushi Takeda, chief economist at the Itochu Economic Research Institute. “More and more companies are also able to move higher costs up the supply chain.”
Uneven heights
While raising wages has been an elusive goal for Japanese policymakers for decades, recent cost-of-living pressures have increased the urgency of this task.
With his approval ratings declining, Kishida pledged to achieve another year of strong wage increases and avoid the economic recession Japan experienced in the late 1990s and early 2000s.
The Prime Minister last week called on the business community to beat this year’s wage growth in 2024.
Kishida offered subsidies and tax incentives for companies that implement bold wage increases and plans to allow loss-making small and medium-sized enterprises that do not pay taxes to benefit from tax breaks later. The Prime Minister also aims to give SMEs more bargaining power in negotiations with larger clients.
Another year of strong wage growth would also help the Bank of Japan pursue an end to its controversial monetary stimulus. Markets are betting that the central bank may end negative interest rates around April, when it becomes clearer on wages.
The Bank of Japan’s quarterly business survey in December and wage talks between Japan’s largest business lobby group and Ringo in January may provide early clues.
However, what is key is whether wage increases will extend to smaller companies and those in regional areas.
A report issued by regional branch managers of the Bank of Japan in October warned that wage increases remain uneven between sectors, with many companies undecided on wage increases next year.
In Saitama Prefecture, north of Tokyo, Nitto-Seimitsu Kogyo, a small auto parts tool maker with 113 employees, is increasing wages by about 2% each year, but will not be able to pay more.
“I want to increase our employees’ wages further to help our workers deal with high inflation, but our maximum is 2%,” said factory head Keita Kondo.
(Reporting by Tetsushi Kajimoto and Kentaro Sugiyama – Prepared by Muhammad for the Arabic Bulletin) Editing by Sam Holmes and Laika Kihara
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