Japan’s largest labor union federation is set to demand higher pay increases for next year, potentially providing the key element needed for the central bank to move toward policy normalization.
(Bloomberg) — Japan’s largest labor union federation is set to demand higher pay increases for next year, potentially providing the key element needed for the central bank to move toward policy normalization.
Rengo, the country’s biggest trade union federation, plans to call for companies to raise wages by “at least 5%” in the annual wage negotiations starting next year, according to broadcaster NHK. The goal would be slightly more ambitious than the one set before this year’s talks, when the union sought an “about 5%” increase.
The federation is expected to announce its target figures later Thursday as part of its basic vision for upcoming wage negotiations that culminate in the spring.
The slightly more ambitious goal may be one factor that convinces the Bank of Japan that wage hike momentum is likely to be sustained following this year’s historic pay gains. Governor Kazuo Ueda has repeatedly suggested that rising salaries are a key factor in achieving the goal of sustainable inflation, which is a precondition for scaling back ongoing stimulus.
Ueda earlier mentioned the possibility that the BOJ might have enough evidence to determine the sustainability of wage increases by the end of the year, in an interview with the Yomiuri newspaper. The announcement of Rengo’s target may be one event that Ueda had in mind.
“The BOJ may take Rengo’s request as a sign that momentum for wage increases is building,” said Yohei Nishino at Mizuho Research & Technologies’ research division. Still, Nishino said the minor change in language alone isn’t enough to convince the BOJ about the sustainability of wage growth or the need for a policy pivot.
“The BOJ should judge the trend once Rengo compiles requests from member companies in early March,” he said.
The goal for 2024 will include base salary increases of 3% or more, according to NHK. BOJ board member Asahi Noguchi recently said that base pay needs to increase at a pace close to 3% as a trend for the bank’s stable price target to be met.
During this year’s spring pay negotiations, workers ultimately won a 3.58% wage rise, the largest gains in around 30 years, with a 2.12% hike for base pay. But the strong gain appears to have been offset by inflation. Real wages for Japanese workers have continued to fall, while nominal pay has stagnated after rising sharply in May and June due to one-time factors.
Prime Minister Fumio Kishida is also paying close attention to wage negotiations, given his vision for fairer income distribution. The premier met with Tomoko Yoshino, the head of Rengo, on Wednesday and agreed that it is important to achieve sustained wage increases.
Following Rengo’s goal announcement, major Japanese companies may begin disclosing their individual pay plans toward the end of the year. Last year Nippon Life was among insurance companies unveiling plans for big raises, with the company eyeing gains of 7% for its sales force. Uniqlo operator Fast Retailing Co. said in early January that it would raise salaries by up to 40%, encouraging others to follow suit.
Considering factors including Rengo’s more ambitious demand, strong corporate earnings and labor shortages, next year’s wage increase could be higher than expected, according to Mizuho’s Nishino.
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