Japan government plans to raise minimum wage in stimulus package to revive economy

[November 23, 2015]  By Takashi Umekawa and Stanley White

TOKYO (Reuters) - Japan's government plans to raise the minimum wage and introduce other steps to revitalise the economy, but the draft of stimulus measures seen by Reuters on Monday appeared to break no new ground on reforms that analysts say are needed to end decades of stagnation.

Prime Minister Shinzo Abe's government will also offer some financial support to people living off their pensions to bolster consumer spending, a copy of the draft obtained by Reuters showed.

Citing unnamed sources, the Nikkei newspaper said on Monday that the government is planning to raise the minimum wage by 3 percent. But the draft didn't provide any specifics and analysts say the government will need to do more to foster durable growth.

Raising wages is an urgent task for policymakers as Tokyo is keen to ramp up consumer spending, which is seen as crucial to boosting domestic demand and pulling the economy out of 15 years of deflation.

However, some economists remained sceptical of the plans because they do not do enough to address Japan's rigid labour market and low worker productivity.

"This sounds like short-term stimulus, but Japan needs structural reforms more than stimulus measures," said Marcel Thieliant, Japan economist at Capital Economics in Singapore.

"We might get a growth spurt for the next one to two years, but this will not lead to stronger growth in the long term."

BOWL OF RAMEN

The economy has fallen into recession twice since Abe took office in late 2012, and his government is under pressure to show that it can improve the economy with a package of steps due this week.

The national average of Japan's minimum wage was at 780 yen ($6.33) per hour in the last fiscal year, so a 3 percent increase would still not buy more than a bowl of ramen noodles - an illustration of the daunting task policy makers face in boosting consumption and growth.

The minimum wage has been rising for the past few years, but Japan's rates are only slightly above the average for OECD members, and labour unions have argued for bigger increases.

The government will also loosen regulations to encourage capital expenditure by small firms, and provide a time frame for lowering the corporate tax rate below 30 percent to improve competitiveness, the draft showed.

The government has already committed to lowering the corporate tax rate to around 31 percent next fiscal year, but companies have been asking for bigger tax cuts.

Economics Minister Akira Amari will present the draft at a meeting of the government's top advisory panel on Tuesday. Abe's government is due to finalise the economic stimulus measures by the end of this month.

($1 = 123.2000 yen)

(Editing by Shri Navaratnam)

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