Japan’s largest company agrees to raise wages by 5.28%, the largest increase in 33 years

Japan’s largest companies agreed to raise wages by 5.28% in 2024, the largest pay increase in 33 years, the country’s largest labor union said on Friday, reinforcing that the Bank of Japan will soon abandon its decade-long stimulus plan the opinion of.

The much-bigger-than-expected increase comes as the Bank of Japan looks set to end eight years of negative interest rates. Bank of Japan officials stressed that the timing of the shift will depend on the outcome of this year’s annual wage talks.

Policymakers hope a big pay rise will boost household spending and bring more sustained growth to the broader economy, which narrowly avoided slipping into recession late last year.

According to the union Rengo, workers at large companies are demanding an annual salary increase of 5.85%, exceeding 5% for the first time in 30 years.

Moe Nakahama, an economist at Itochu Economic Research Institute, said: “We estimate that wage growth this year may reach 5.3%. If this target is achieved, real wages will turn positive from April to June 2024.”

Rengo, which represents about 7 million workers, many of whom work for large companies, is targeting a base wage increase of more than 3%. Base salary is a key barometer of wage intensity because it provides the basis for bonuses, severance pay and pensions.

Analysts had expected growth of more than 4% this year, compared with 3.6% last year, a 30-year high.

Rengo Chief Executive Tomoko Yoshino told a news conference that rising income inequality, inflation and a tight labor force were among the factors behind the sharp rise, adding that wages for part-time workers would rise 6% this fiscal year. .

Yoshino said Japan is at a critical stage of economic recovery.

The government is counting on such wage increases to benefit small and medium-sized enterprises, which account for 99.7% of all businesses and about 70% of the country’s workforce, but many lack the pricing power to pass on higher costs to their customers.

Wage negotiations at most smaller companies are expected to wrap up by the end of March, and any pay increases are likely to be smaller than those agreed to by larger companies.

For example, a survey released by the Japan Chamber of Commerce last month showed that only 57% of smaller express delivery companies planned to raise wages in the fiscal year starting in April.

Although Japanese companies have been raising wages, the increases have largely failed to keep pace with inflation. Real wages, adjusted for inflation, have now fallen for 22 consecutive months.

labor shortage

There have been strong performances in labor negotiations, led by Toyota Motor Corp 7203.T , the annual negotiation leader, which announced the largest salary increase in 25 years.

The sharp rise in wages is likely to bolster expectations that the central bank will end negative interest rates as early as its next policy-setting meeting on March 18-19.

Japanese companies are facing chronic labor shortages due to an aging and shrinking workforce.

Prime Minister Fumio Kishida is pushing companies to raise wages to help the country emerge from years of deflation and end meager wage growth that lags far behind the average among rich OECD countries.

Annual pay negotiations – known as the “Spring Labor Offensive” – ​​are one of the defining features of corporate Japan, where industrial relations tend to be more collaborative than in some other countries.