Many of Japan's biggest companies are expected to offer substantial wage hikes for a third consecutive year when they conclude talks with unions on Wednesday, seeking to help workers cope with inflation and retain staff amid labour shortages.

Last year's "shunto" or "spring labour offensive" negotiations resulted in the sharpest increase in 33 years, enabling the central bank to exit its decade-long super-loose monetary policy.

Record corporate profits, helped by a weak yen, also support the case for lifting pay and this year economists expect increases to be similar to last year's average hike of 5.1%.

That hike followed a rise of 3.58% in 2023. Before that, annual pay increases for the preceding two decades were between 1-2% and as a result, Japan's wage levels remain well behind the average for the OECD grouping of rich countries.

Rengo, Japan's largest labour union umbrella group with 7 million members, said last week its unions were seeking an average hike of 6.09%, up from 5.85% last year and marking the first time in 32 years that more than 6% has been sought.

Some firms wrapped up their wage negotiations early, responding to union requests in full.
Toyota (NYSE:TM)'s top supplier Denso, for instance, agreed on February 17 to record pay hikes, meeting union demands of 23,500 yen ($160) per person a month and a bonus equivalent to 6.3 months of wages.

Much of the focus on this year's "shunto" talks is whether there will also be strong pay gains at small and medium-sized firms which employ around 70% of Japan's workforce.
Toyota, the bellwether for many Japanese manufacturers, has said it plans to pay more for domestic components to help suppliers fund pay rises.

Broad-based pay increases are seen as a prerequisite for the Bank of Japan to continue to hike its policy rate from a still very low level of 0.5%.

Prime Minister Shigeru Ishiba's government also wants robust wage hikes to boost consumer spending as the rising cost of food and other necessities have contained inflation-adjusted real wages growth to around zero.

The consumer inflation rate used to calculate real wages, which includes fresh food items but not rent costs, rose to 4.7% year-on-year in January - the highest reading in two years.

Even a pay raise of 5-5.5% this year would "just offset inflation and not drive consumer spending," said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.

The annual pay talks are one of the defining features of Japanese business, where relations between labour and management tend to be more collaborative than in some other countries.

($1 = 147.13 yen)

Source: Investing.com