Large firms in Japan are scheduled to implement further pay rises in 2024, following the enormous ones that took place this year. These increases are anticipated to stimulate household spending and provide the necessary circumstances for the central bank to eventually reduce substantial monetary support.
Early signals from industry, labor organizations, and economists indicate that the labor and cost pressures that paved the way for this year's pay increases — the biggest in over thirty years — will persist into the crucial spring wage negotiations next year.
For example, the boss of the major beverage manufacturer Suntory Holdings Ltd. intends to provide average monthly wage increases of 7% to staff in 2024 for the second year in a row in an effort to counteract growing inflation and retain talent in a competitive labor market.
Beginning in April of next year, Meiji Yasuda Life Insurance Corporation plans to increase the yearly salary of approximately 10,000 employees by 7% on average. Meanwhile, Bic Camera, an electronics shop, plans to increase the pay of 4,600 full-time employees by a maximum of 16%.
Takeshi Niinami, the CEO of Suntory Holdings, said that there is an important change in paradigm occurring that is moving away from deflation and toward inflation. He believes that those who move quickly with pay increases should be competitive, given the rapidly shifting landscape.
These announcements coincide with Kishida's increasing pressure on businesses to raise wages in order to lessen the burden that rising living expenses are placing on households.
Back-to-back yearly salary increases would also give Governor Kazuo Ueda of the Bank of Japan one of the prerequisites — sustainable wage growth — that he needs to undo the extraordinary monetary stimulus of the previous ten years.
According to labor expert and Hosei University professor Hisashi Yamada, stubborn inflation and a long-term labor shortage will cause next year's wage discussions to result in pay that is either the same as this year's or even higher.
The OECD data indicates that throughout the last thirty years or so, average wages in Japan have scarcely increased due to chronic deflation and the likelihood of sustained low growth, which has discouraged companies from increasing salaries.
After supply shortages brought on by the epidemic and the conflict in Ukraine sharply increased the price of raw materials, forcing businesses to pass those increases along to customers, the tide started to turn.
Companies are under enormous pressure to provide wage increases to employees in order to attract and retain talent, as inflation has been above the BOJ's target of 2% for over a year.
A request for pay increases of about 5% made this year by Rengo, the biggest trade union confederation in Japan, led to average salary increases of 3.58% across large corporations. Rengo said it will request a pay increase of 5% or higher for the upcoming year.
According to Atsushi Takeda, the chief economist of the Itochu Economic Research Institute, a mix of inflation, a tight labor market, and corporate earnings will provide a windfall to maintain the pace for pay increases. Increasingly, businesses can now pass on rising costs in supply chain.
Uneven hikes
Raising salaries has long been a difficult objective for Japanese policymakers, but current pressures related to the cost of living have made the work more pressing.
As his popularity ratings plummet, Kishida has promised to deliver a further year of substantial wage increases and steer clear of the economic downturn that Japan experienced in the late 1990s and early 2000s.
Last Monday, the prime minister challenged the business world to outpace the rate of wage increase this year in 2024.
For businesses that boldly raise salaries, Kishida has provided tax incentives and subsidies. He also intends to give tax breaks to loss-making small and medium-sized enterprises (SMEs) that do not pay taxes. Moreover, the premier wants to offer SMEs greater bargaining power when negotiating with larger customers.
It would also be easier for the BOJ to pursue ending its contentious monetary stimulus program with another year of strong wage growth. By April, when it has more clarity regarding wages, the markets are anticipating that the central bank may stop negative rates of interest.
Perhaps even more early hints can be found in the quarterly tankan business survey of the BOJ in December and the pay negotiations between Rengo and Japan's biggest business lobby in January.
The crucial question is whether wage increases affect smaller businesses and those in rural areas.
In October, a study released by the regional branch managers of the BOJ cautioned that pay increases were still uneven across sectors and that many companies were unsure about their plans for pay increases in the following year.