Japan’s big firms set to offer biggest pay rises in decades

“Average wage hikes that are consistent with the central bank’s 2% price target are 3% which can be met this year albeit temporarily,” Yamada said.

Takahide Kiuchi, a former Bank of Japan board member who is now executive economist at Nomura Research Institute, said base pay rises hold the key in determining how wages may affect prices.

The JERC survey showed that excluding seniority-based pay, base compensation that boosts fixed labour costs accounts for just 1.08%.

“We need to focus on base pay. It will likely be a little above 1%, still way lower than price increase,” Kiuchi said.

Kishida’s government will likely hold a joint three-party meeting with labour and management for the first time in eight years on Wednesday to ensure structural wage hikes.

Follow the pace-setter

There are already some encouraging signs.

Workers from Japan’s largest group of trade unions last week struck early agreements for hefty wage hikes. Other unions from Toyota, the world’s No. 1 automaker, and Honda, have also secured their biggest pay rises in decades.

What’s unique about shunto in Japan is that every March, more than 300 major firms capitalized at 1 billion yen or more and with 1,000 or more workers, negotiate with their union following wages pace-setters such as Toyota Motor Corp.

Company unionists have historically tended to settle for relatively meager pay hikes around 2% in recent years, as unions are inclined to cooperate with management in keeping job security rather than aggressively demanding pay rises.

It remains unclear, however, whether the wave of wage hikes could spread to small firms, which employ seven out of 10 workers but struggle to pass on costs to their bigger clients at the end of supply chains.

Some analysts are also skeptical that unions will be as aggressive in demanding higher pay in coming years if inflation eases, as it is expected to from the middle of the year.

Real wages fell in January at the fastest pace since May 2014 when the sales tax was raised to 8% from 5%.

Japan’s wages have grown just about 5% over the last 30 years, far below an average 35% gain among member countries during the same period, OECD data shows.