Japanese firms, unions kick off wage talks as markets bet on bigger pay hikes

Rengo

24/01/2024 02:39

By Tetsushi Kajimoto
       TOKYO, Jan 24 (Reuters) - Japan's biggest business lobby
Keidanren and trade unions kicked off annual labour talks on
Wednesday that may pave the way for the central bank to exit its
decade-long super-loose monetary policy.
    The talks come a day after the Bank of Japan (BOJ) took a
hawkish turn in policy even as it maintained its accommodative
monetary settings, with markets increasingly betting on a shift
towards normalising rates in March or April. 
    Japan's big firms are expected to offer their unions wage
hikes of 3.85% on average this year, the highest wage increase
in 31 years, according to a poll of 37 economists conducted Dec.
25-Jan. 9 by Japan Centre for Economic Research, a private think
tank.
    The 3.85% estimate beat last year's three-decade high of
3.6%, the biggest gain since Japan's asset bubble burst in the
early 1990s. An agreement for a 3.85% hike would mark the
fastest growth in annual pay since 1993 when wages grew 3.89%.
    "This year, we are aiming for wage hikes that beat inflation
in order to achieve structural wage hikes," Keidanren chief
Masakazu Tokura said in a video message, underscoring the
importance of improving labour productivity through sustainable
wage hikes.
    Tokura stopped short of specifying target pay hike levels.
    Since last year, a number of major firms had already
announced their intention of delivering large pay hikes, though
struggling smaller firms have lagged behind.
    Small firms that employ seven out of 10 workers hold the key
to wage hike talks and their ability to pass on costs to their
bigger clients would determine if they are able to jump on the
bandwagon of higher pay.
       
    BASE PAY 
    In terms of the impact on Japan achieving sustainable
inflation, a key criteria set by the BOJ to exit its easy
policy, base pay hikes matter more than the seniority-based
automatic annual raise built into the pay scale, analysts say.
    Base pay rises of 3% would be enough to meet the BOJ's 2%
inflation target, they say. At the moment, however, the base pay
gains fall below that level.
    Of the overall hikes of 3.85% expected by analysts for 2024,
 base pay rises make up 2.15%, while seniority-based automatic
annual wage hike is 1.7%, according to the poll of analysts.
    Rising base pay feeds into increased fixed labour costs,
burdening companies with higher costs of retirement fees and
pension payments.
    It's a key reason why many Japanese firms shied away from
base pay hikes for years when the economy stagnated in the early
2000s.

 (Reporting by Tetsushi Kajimoto
Editing by Shri Navaratnam)
 ((tetsushi.kajimoto@thomsonreuters.com; +81-3-6441-1829;))