Japanese firms, unions kick off wage talks as markets bet on bigger pay hikes

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s biggest business lobby Keidanren and trade unions kicked off annual labour talks on Wednesday that may pave the way for the central bank to exit its decade-long super-loose monetary policy.

The talks come a day after the Bank of Japan (BOJ) took a hawkish turn in policy even as it maintained its accommodative monetary settings, with markets increasingly betting on a shift towards normalising rates in March or April.

Japan’s big firms are expected to offer their unions wage hikes of 3.85% on average this year, the highest wage increase in 31 years, according to a poll of 37 economists conducted Dec. 25-Jan. 9 by Japan Centre for Economic Research, a private think tank.

The 3.85% estimate beat last year’s three-decade high of 3.6%, the biggest gain since Japan’s asset bubble burst in the early 1990s. An agreement for a 3.85% hike would mark the fastest growth in annual pay since 1993 when wages grew 3.89%.

“This year, we are aiming for wage hikes that beat inflation in order to achieve structural wage hikes,” Keidanren chief Masakazu Tokura said in a video message, underscoring the importance of improving labour productivity through sustainable wage hikes.

Tokura stopped short of specifying target pay hike levels.

Since last year, a number of major firms had already announced their intention of delivering large pay hikes, though struggling smaller firms have lagged behind.

Small firms that employ seven out of 10 workers hold the key to wage hike talks and their ability to pass on costs to their bigger clients would determine if they are able to jump on the bandwagon of higher pay.


In terms of the impact on Japan achieving sustainable inflation, a key criteria set by the BOJ to exit its easy policy, base pay hikes matter more than the seniority-based automatic annual raise built into the pay scale, analysts say.

Base pay rises of 3% would be enough to meet the BOJ’s 2% inflation target, they say. At the moment, however, the base pay gains fall below that level.

Of the overall hikes of 3.85% expected by analysts for 2024, base pay rises make up 2.15%, while seniority-based automatic annual wage hike is 1.7%, according to the poll of analysts.

Rising base pay feeds into increased fixed labour costs, burdening companies with higher costs of retirement fees and pension payments.

It’s a key reason why many Japanese firms shied away from base pay hikes for years when the economy stagnated in the early 2000s.

(Reporting by Tetsushi Kajimoto; Editing by Shri Navaratnam)