Japanese Companies' Hike Proposition highest in 31 Years

Photo:Freepik

Major Japanese companies are expected to formally propose substantial pay increases during annual wage talks with unions that conclude on March 13. Economists predict an average rise of around 3.9% in annual pay for union workers at large firms, marking the most significant increase in 31 years. This development is likely to reinforce the case for the Bank of Japan (BOJ) to phase out its unprecedented monetary easing, with expectations of ending negative interest rates by April.

The BOJ has consistently emphasized the importance of robust wage growth as a prerequisite for rolling back more than a decade of radical monetary policies aimed at combating deflation and economic stagnation. The annual "shunto" negotiations, a traditional aspect of Japanese business, have gained renewed significance as Prime Minister Fumio Kishida prioritizes pay increases to address years of meager wage growth compared to the OECD average.

Wage negotiations, previously overshadowed by efforts to reduce debt, excess workers, and redundant assets after the asset bubble burst in the early 1990s, have returned to the forefront. The current labor shortage in Japan has underscored the need for companies to raise pay to attract talent, with the expectation that big firms will offer wage hikes close to 4%, potentially leading to the BOJ ending negative interest rates in April.

While the wage talks directly impact a small segment of the workforce at major firms, such as Toyota Motor, they set a precedent for the broader economy. Wage increases are becoming increasingly crucial to attract workers in Japan, particularly as the country grapples with higher prices, marking a departure from the past three decades when prices remained relatively stable.