After years of modest pay growth, Japanese workers are starting to see increases in their wages. Some of Japan’s biggest corporations such as Toyota, Panasonic, Nippon Steel, and Nissan have agreed to meet union demands for a wage hike. This is significant as it can pave the way for an end to the years of negative interest rates, enabling the central bank to make critical policy changes. While these are promising developments which could also give a boost to consumer spending, questions remain about whether this trend of wage hikes will continue and trickle down to smaller firms.
Significant Pay Increase for Factory Workers
Toyota, the world’s largest carmaker, has acceded to worker demands for significant pay raises. The company confirmed that it would increase monthly salaries by as much as 28,440 yen ($193) and also grant record bonus payments. This is the biggest wage growth the company has given in the past 25 years and was met positively by Japanese government officials. Japan’s top government spokesperson and Chief Cabinet Secretary, Yoshimasa Hayashi, voiced his approval, underlining the importance of the wage hike momentum extending to small and mid-sized firms.
Effect on Japan’s Central Bank Policy
The wage hikes are being observed carefully as they could signal a shift in the central bank’s policy, specifically, an end to its years-long policy of negative interest rates. The Bank of Japan has since 2016 stuck with massive monetary stimulus and ultra-low rates in an effort to revive its economy. The bank is expected to discuss this during its next policy-setting meeting. Governor Kazuo Ueda said the outcome of the yearly wage negotiation would be critical in determining when to exit from the massive stimulus.
Closing Wage Gap
The Japanese Association of Metal, Machinery, and Manufacturing Workers, a union representing workers at small manufacturing firms, revealed that the wage increases negotiated for its members were higher than expected. JAM Chairman Katahiro Yasukochi noted that Japanese workers were beginning to realize the significant gap between wages inside and outside the country. However, smaller firms that employ seven out of ten Japanese workers are struggling to offer sizable pay raises due to their limited ability to pass on the costs to their clients.
Impact on Inflation and Economic Growth
These sizeable wage increases have the potential to significantly impact inflation and the overall Japanese economy. Experts attribute this trend of higher wages to global wage increases, domestic labor shortages, and inflation. Japan’s prime minister Fumio Kishida has made wage growth and boosting consumer spending a top priority, and these developments could help in achieving these goals.
The Question of Sustainability
Despite the positive signs, questions remain about the sustainability of these pay raises. Hisashi Yamada, a senior economist at the Japan Research Institute and an expert on labor issues, remarked that it remains uncertain whether this trend of wage hikes can be sustained and if it will extend to smaller and medium-sized companies. Furthermore, some companies are under government pressure to facilitate wage hikes downstream, aiming to reverse a 22-month streak of consecutive falls in real wages (which are adjusted for inflation).