Japan's back-to-back wage bonanza would open door for BOJ exit
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[November 20, 2023] By
Tetsushi Kajimoto and Kentaro Sugiyama
TOKYO (Reuters) - Japan's big employers are set to follow this year's
bumper pay hikes with another round in 2024, which are expected to help
lift household spending and give the central bank the conditions it
needs to finally roll back massive monetary stimulus.
Early indications from businesses, unions and economists suggest the
labour and cost pressures that set the stage for this year's pay hikes -
the largest in more than three decades - will persist heading into next
year's key spring wage talks.
The head of major beverage maker Suntory Holdings Ltd, for example,
plans to offer employees average monthly pay hikes of 7% in 2024 for the
second straight year, to retain talent in a tight labour market and
offset rising inflation.
Meiji Yasuda Life Insurance Company intends to raise annual pay by 7% on
average for about 10,000 employees from next April, while electronics
retailer Bic Camera is set to raise 4,600 full-timers' pay by up to 16%.
"What's going on is a big paradigm shift away from deflation and towards
inflation," Suntory Holdings CEO Takeshi Niinami, who also sits on Prime
Minister Fumio Kishida's top economic advisory council, told Reuters.
"Given the fast-changing landscape, I believe those who move fast (with
wage hikes) should become competitive."
Those announcements come as Kishida heaps pressure on companies to hike
pay to offset the pain on households from rising living costs.
The back-to-back annual pay bumps would also provide Bank of Japan
Governor Kazuo Ueda with one of the pre-conditions he needs to dismantle
the extreme monetary stimulus of the past decade: sustainable wage
growth.
"A combination of the chronic labour crunch and stubborn inflation will
lead next year's wage negotiations to result in the same or even higher
pay from this year," said Hisashi Yamada, labour expert and professor of
Hosei University.
OECD data shows average wages have barely risen in Japan for about past
30 years as chronic deflation and prospects of prolonged low growth
discouraged firms from raising pay.
The tide began to shift after supply constraints caused by the pandemic
and the Ukraine war led to sharp rises in raw material prices, forcing
firms to pass on higher costs to consumers.
With inflation having held above the BOJ's 2% target for more than a
year, companies have faced unprecedented pressure to compensate
employees with pay hikes to retain and lure talent.
A demand made this year by Rengo, Japan's largest trade union
confederation, for pay hikes of "around 5%" resulted in average wage
hikes of 3.58% among major companies. Rengo has said it will demand a
pay hike of "5% or higher" next year.
Another major union UA Zensen, which covers service-sector workers and
part-timers, said it would demand a pay 6% rise next year, in line with
this year's demand.
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Female office workers wearing high heels, clothes and bags of the
same colour are seen at a business district in Tokyo, Japan, June 4,
2019. REUTERS/Kim Kyung-Hoon
Six out of 10 economists in a Reuters poll expect major firms' pay
hikes in 2024 to exceed this year's.
"A combination of inflation, tight labour market and corporate
profits will blow a tailwind to keep up the momentum for wage
hikes," said Atsushi Takeda, chief economist at Itochu Economic
Research Institute. "More and more companies are also able to pass
on higher costs in supply chain."
UNEVEN HIKES
While lifting wages has been an elusive goal for Japanese
policymakers for decades, recent cost-of-living pressures have added
urgency to the task.
With his approval ratings plunging, Kishida has pledged to achieve
another year of robust pay hikes and avoid the economic stagnation
Japan saw in the late 1990s and early 2000s.
The prime minister last week called on the business community to
beat this year's wage growth in 2024.
Kishida has offered subsidies and tax incentives for firms that
carry out bold pay hikes and plans to allow loss-making SMEs who
don't pay taxes to benefit from tax breaks later on. The premier
also aims to give SMEs more bargaining power in negotiations with
bigger clients.
Another year of solid wage growth would also help the BOJ pursue an
end to its controversial monetary stimulus. Markets are betting the
central bank could end negative interest rates by around April, when
it gets more clarity on wages.
The BOJ's quarterly tankan business survey in December and wage
talks between Japan's largest business lobby and Rengo in January
may offer even earlier clues.
The key, however, would be whether wage hikes broaden to smaller
firms and those in the regional areas.
A report by the BOJ's regional branch managers in October warned
wage hikes remained uneven among sectors with many firms undecided
on next year's pay increments.
In Saitama prefecture, north of Tokyo, Nitto-Seimitsu Kogyo Co., a
small manufacturer of auto-part tools that has 113 employees, is
raising wages by around 2% every year, but won't be able to pay
more.
"I want to raise wages more for our employees to help our workers
cope with high inflation but 2% is our limit," said factory boss
Keita Kondo.
(Reporting by Tetsushi Kajimoto and Kentaro Sugiyama; Editing by Sam
Holmes and Leika Kihara)
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