Morning commuters wait to board a train at a station in Inzai, Chiba Prefecture, Japan, on Tuesday, Dec. 9, 2014. Japan’s recession was deeper than initially estimated as company investment unexpectedly shrank, a blow to Prime Minister Shinzo Abe as he campaigns for re-election on his economic credentials. Photographer: Kiyoshi Ota/Bloomberg

Toyota, Nissan and Hitachi are among Japan’s largest companies moving to slot in place the missing piece of the prime minister’s Abenomics economic stimulus effort, as they agreed to the biggest increase in base pay for more than a decade.

The across-the-board increase in wages for Japanese workers, for the second straight year, came after Shinzo Abe visibly stepped up his pressure on companies to play their part in ending nearly two decades of deflation.

“The government, companies and unions all share the feeling on the virtuous economic cycle,” in creating a virtuous cycle of higher pay, consumption and output, said Toyota’s managing officer Tatsuro Ueda.

Toyota agreed to raise the monthly pay — including both base pay and seniority pay — for its unionised workers by an average 3.2 per cent starting in April as the world’s biggest carmaker anticipates a second straight year of record profit.

The increase of Y4,000 in base pay, or an average 1.1 per cent, is lower than the union’s request of Y6,000, but the amount is the biggest since its current pay system was installed in 2002.

Since Mr Abe launched his three-pronged economic revitalisation programme in 2012, shares have risen to their highest level in 15 years while corporate profits soared on the back of a weaker yen. Yet, Japanese workers have yet to benefit from a substantial rise in their pay, even as they were hit by a 3 percentage point increase in the consumption tax.

Companies have long been reluctant to raise basic pay since it affects every point in Japan’s strict seniority-based wage system, permanently increasing the overall wage bill, even if it does boost disposable income, helping the broader economy.

Japanese wage growth

Hidenobu Nakahata, chief human resources officer at Hitachi, acknowledged “a strong sense of crisis” about the impact of rising fixed costs on its competitiveness.

Still, the Japanese industrial conglomerate offered an average 3 per cent rise in monthly pay — including a 1 per cent boost in base pay — for its workers, taking into account its robust earnings and the broader economic conditions. If all of Hitachi’s affiliates and subsidiaries decide to increase their base pay by Y3,000 — the biggest amount since 1998 — labour costs would increase by around Y10bn ($82m).

“We are aware that Hitachi has a social responsibility,” Mr Nakahata said.

Among automakers, Nissan offered the biggest rise in base pay at Y5,000, which translates to an average 1.4 per cent increase. Including bonus payments, workers will receive an average 3.6 per cent raise in annual pay.

Hiroto Saikawa, Nissan’s chief competitive officer, hinted the rising wage trend will continue. “This is not a one-time thing,” he said.

Though hit by recall costs and sluggish sales, Honda is offering a 2.9 per cent rise in annual pay, including a Y3,400 rise in base pay.

The Bank of Japan is counting on a sustainable rise in wages to support its push for 2 per cent inflation especially since falling oil prices have made the goal harder to achieve.

Excluding volatile fresh food prices and the effects of a consumption tax hike, annual inflation fell to just 0.2 per cent in January. It may turn negative in the next couple of months.

The rise in basic pay last year was about 0.4 per cent, far weaker than what is needed to drive consumption on pace with a 2 per cent inflation target. This year, economists expect a base pay rise closer to 1 per cent.

“The key question is how much the smaller companies can follow suit,” said Masayuki Kichikawa, economist at Bank of America Merrill Lynch. The annual spring wage talks by Japan’s trade unions only covers less than a fifth of Japan’s entire workforce.

Reaction so far has been mixed. Falling oil prices have mitigated the rising costs of imported materials caused by the weaker yen, but smaller companies remain wary about raising base pay.

In a December survey by the Japan Chamber of Commerce and Industry, 34 per cent of small and medium-sized companies said they plan to raise base pay, lower than 40 per cent in the previous survey in 2013.

Get alerts on Companies when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article