Japan Inc to raise wages but many firms short of PM Abe’s 3pc target

Construction workers erect scaffoldings for Electric Power Development Co (J-Power)'s No. 2 unit of coal-fired thermal plant currently under construction in Yokohama, south of Tokyo August 7, 2007. — Reuters picConstruction workers erect scaffoldings for Electric Power Development Co (J-Power)'s No. 2 unit of coal-fired thermal plant currently under construction in Yokohama, south of Tokyo August 7, 2007. — Reuters picTOKYO, March 14 — Big Japanese companies agreed today to raise wages for a fifth year but many are expected to fall short of meeting Prime Minister Shinzo Abe's 3 per cent goal, adding to doubts the central bank will be able to hit its consumer price target.

The results of the “shunto” spring wage negotiations between corporate management and unions, announced by the big automobile and electronics companies, set the tone for wage hikes across the nation and could give hints about future consumer spending.

Abe has been campaigning for a 3 per cent gain to spur consumption and banish the deflation that has dogged Japan's economy for nearly two decades. Bank of Japan Governor Haruhiko Kuroda has also urged a 3 per cent raise to nudge up inflation to the BOJ's long elusive 2 per cent target.

Wage growth is expected to accelerate given bigger bonuses, and rising pay at small firms and for part timers. Still, it won't reach Abe's 3 per cent target or be strong enough to clear hurdles for the central bank to raise rates, some analysts say.

“The Bank of Japan won't move this year. It will probably wait to see results of next year's shunto,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

Even though many Japanese companies are sitting on piles of cash from healthy earnings, they are wary of boosting base salaries because that commits them to higher fixed personnel costs. Instead, they prefer one-off bonuses and other benefits.

Toyota Motor Corp, considered a bellwether in the country's annual wage negotiations, agreed to raise monthly base salaries by more than 1,300 yen (RM47.62) for the coming year, more than last year but below the union's demand for 3,000 yen.

Including increases in base salary for fulltime employees and pay for contract workers, Japan's largest automaker said that overall monthly payment for all union members would increase by an average 3.3 per cent.

“We have agreed to the increase as we would like to contribute to the country's economic development and its manufacturing culture,” Toyota senior managing officer Tatsuro Ueda told reporters in Toyota City, central Japan.

Over the past four years, major companies agreed to raise wages about 2 per cent each spring. The bulk of that — about 1.8 percentage points — comes automatically under Japan's seniority-based employment system. Anything beyond that is a hike in “base pay.”

Several economists have forecast major companies would agree to base pay hikes of 0.5-0.6 per cent, which with the seniority-based automatic salary rise would bring wage growth in the vicinity of 2015's 2.38 per cent rise, which was a 17-year high.

“Wage hikes are regaining momentum, but they are still shy of reaching 3 per cent at most companies,” said Hisashi Yamada, director at Japan Research Institute.

“I doubt companies can sustain wage hikes without government pressure. They must steadily raise wages on their own initiative to revamp business structure and improve their ability to grow.”

Employees' wage gains could be offset by cuts in overtime pay in the coming year as companies come under pressure from the government to curb Japan's notoriously long overtime hours.

Rises in deductions for social security to service the rapidly ageing population could also cut into wage gains, analysts say.

Japan's unions tend not to be as aggressive in pressing their demands as those in the West because they attach greater importance to job security and maintain a sense of corporate loyalty. — Reuters