By Tetsushi Kajimoto and Kentaro Sugiyama
TOKYO, November 20 (Reuters) – Japan’s big employers intend to follow this year’s wage increases with another round in 2024, which are expected to help boost household spending and give the central bank the conditions it needs to finally scale back massive monetary stimulus.
Early indications from businesses, unions and economists point to labor and cost pressures setting the stage for this year’s wage increases – the biggest in more than three decades – will persist towards next year’s key spring salary talks.
The head of major drinks maker Suntory Holdings Ltd, for example, plans to offer 7,000 employees an average monthly salary increase of 7% in 2024 for the second straight year, to retain talent in a tight labor market and offset rising inflation.
Meiji Yasuda Life Insurance Company intends to raise annual pay by 7% on average for some 10,000 employees starting next April, while electronics retailer Bic Camera is set to raise the pay of 4,600 full-timers by up to 16%.
“What is happening is a big paradigm shift away from deflation and towards inflation,” Suntory Holdings CEO Takeshi Niinami, who also sits on Prime Minister Fumio Kishida’s top economic advisory council, told Reuters.
“Given the rapidly changing landscape, I believe those who move quickly (with wage increases) should become competitive.”
Those announcements come as Kishida pressures companies to raise wages to offset the pain households face from rising living costs.
The back-to-back annual wage increases would also give Bank of Japan Governor Kazuo Ueda one of the preconditions he needs to dismantle the extreme monetary stimulus of the past decade: sustainable wage growth.
“A combination of the chronic labor crime and stubborn inflation will lead next year’s wage negotiations to result in the same or even higher wages than this year’s,” said Hisashi Yamada, a labor expert and professor at Hosei University.
OECD data show average wages have barely risen in Japan over the past 30 years or so, as chronic deflation and prospects of prolonged low growth have discouraged firms from raising wages.
The tide began to turn after supply restrictions caused by the pandemic and the Ukraine war led to sharp increases in raw material prices, forcing companies to pass on higher costs to consumers.
With inflation above the BOJ’s 2% target for more than a year, companies have faced unprecedented pressure to compensate employees with pay rises to retain and lure talent.
A demand made this year by Rengo, Japan’s largest union confederation, for wage increases of “around 5%” resulted in average wage increases of 3.58% among major companies. Rengo said it will demand a pay rise of “5% or higher” next year.
Another major union UA Zensen, which covers service sectors and part-time workers, said it would demand a 6% pay rise next year, in line with this year’s demand.
Six out of 10 economists in a Reuters poll expect wage increases at major firms in 2024 to exceed this year’s.
“A combination of inflation, a tight labor market and corporate profits will be a tailwind to sustain the momentum for wage increases,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “More and more companies are also able to pass on higher costs in the supply chain.”
UNEVEN PIECES
While raising wages has been an elusive goal for Japanese policymakers for decades, recent cost-of-living pressures have added urgency to the task.
With his approval ratings plunging, Kishida vowed to achieve another year of robust wage increases and avoid the economic stagnation Japan saw in the late 1990s and early 2000s.
The Prime Minister last week called on the business community to beat this year’s pay rise in 2024.
Kishida has offered subsidies and tax incentives for companies that implement bold wage increases and plans to allow loss-making SMEs that don’t 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 solid wage growth would also help the BOJ end its controversial monetary stimulus. Markets are betting that the central bank could end negative interest rates around Aprilwhen it gets more clarity on wages.
The BOJ’s quarterly tank business survey in December and wage negotiations between Japan’s largest business lobby and Rengo in January may offer even earlier clues.
The key, however, would be whether wage increases spread to smaller firms and those in the regional areas.
A a report of the BOJ’s regional branch managers in October warned wage increases remained uneven across sectors with many firms undecided on next year’s wage increases.
In Saitama Prefecture, north of Tokyo, Nitto-Seimitsu Kogyo Co., a small maker of auto parts tools that has 113 employees, is raising wages by about 2% annually, but will not be able to pay more.
“I want to raise wages for our employees to help our workers cope with high inflation but 2% is our limit,” said factory manager Keita Kondo.
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(Reporting by Tetsushi Kajimoto and Kentaro Sugiyama; Editing by Sam Holmes and Leika Kihara)
((tetsushi.kajimoto@thomsonreuters.com;))
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