The leader of Keidanren, the largest business lobby in Japan, demanded on Tuesday that wages be increased this year at a rate higher than inflation. This set the stage for yearly salary negotiations that could lead to the Bank of Japan (BOJ) ending its extremely loose monetary policy.
Analysts argue that the question of whether wages would rise sufficiently to spark the sustainable inflation that policymakers view as a necessary condition for removing negative interest rates is at issue in this year’s spring discussions between trade unions and large Japanese corporations.
There is a mid-March deadline for the talks to end.
“We expect the BOJ to validate pay increases at large companies and proceed with eliminating negative interest rates in April,” stated Hideo Kumano, executive chief economist of Dai-ichi Life Research Institute.
In an annual report on Keidanren’s labour policy and management, Chairman Masakazu Tokura stated that companies and the business lobby have a “social responsibility to aim for wage hikes that beat price rises” this year. The report was released on Tuesday.
“There is a strong sense of urgency that Japan’s future depends on our ability to accelerate structural wage hikes this year and beyond,” Tokura stated, emphasising that the current state of affairs presents a “last chance” to entirely eradicate deflation.
The report also stated that policies aimed at achieving “appropriate price rises” should be guided by the government and the BOJ. This is the basis for the lobby membership’s stance in yearly talks with Rengo, Japan’s largest labour union group.
Small businesses, which employ seven out of ten people in Japan and have a bigger influence on pay increases overall, usually start labor-management negotiations after large businesses conclude their talks in March.
Big salary increases are already planned by a few of large organisations; small companies’ plans won’t be known until the middle of the year.
Small businesses typically run on tight margins, but many also struggle with a manpower shortage brought on by Japan’s ageing population. As a result, many are forced to raise rates in order to draw in skilled workers, according to analysts.
The BOJ Governor Kazuo Ueda, Rengo head Tomoko Yoshino, Keidanren chief Tokura, and Prime Minister Fumio Kishida are all requesting pay increases that above inflation, following last year’s labour discussions that resulted in pay increases of approximately 3.6%, the biggest in three decades.
The argument for businesses to give employees a larger share of profits has gained momentum due to the tighter labour market, record corporate profitability, and large cash reserves at many Japanese corporations.
In November, the unemployment rate in Japan was 2.5%, approaching levels not seen since the country’s asset bubble burst in the early 1990s. According to Labour Ministry figures from November, there were over 1.3 jobs available for every job seeker.
As of the end of September, businesses were holding 343 trillion yen ($2.4 trillion) in cash and savings, but analysts pointed out that the ratio of wages to earnings remained low, which allowed for increased labour costs.
The pay negotiations will resume next week with a labour and management forum, which will take place after Tuesday’s release of the Keidanren report.
