Toyota Motor has agreed to provide factory workers with their biggest pay raise in 25 years. This move has increased expectations that the central bank will make a key policy shift next week. Among some of Japan’s biggest names, Toyota, Panasonic, Nippon Steel, and Nissan have agreed to fully meet union demands for pay hikes at annual wage negotiations that wrap on Wednesday.
The annual talks between Japanese management and labour, which are usually collaborative, are being closely watched this year as the pay increases are expected to help clear the way for the central bank to end its years-long policy of negative interest rates as early as next week. Toyota, the world’s biggest carmaker, and traditionally a bellwether of the annual talks, has agreed to the demands of monthly pay increases of as much as 28,440 yen $193 and record bonus payments. The company did not provide a percentage figure for the salary rise, as per past practice.
Japan’s top government spokesperson and chief cabinet secretary, Yoshimasa Hayashi, told reporters that there is strong momentum for wage hikes. He also emphasized the importance of this momentum spreading to small and mid-sized firms. Prime Minister Fumio Kishida has made putting an end to the years of meagre wage growth a top priority to jumpstart feeble consumer spending. Japan’s wage increases have been falling behind the average for the OECD grouping of rich countries.
The Bank of Japan is closely watching the results as a key data point in deciding when to end negative rates, which have been in place since 2016. The bank has stuck with massive stimulus and ultra-low rates for years longer than other developed countries to revive a moribund economy. The bank is set to hold its next policy-setting meeting on March 18-19. Governor Kazuo Ueda has said “The outcome of this year’s annual wage negotiation is critical” in deciding the timing of an exit from massive stimulus.
Workers at major firms have asked for annual increases of 5.85%, according to Japan’s biggest trade union grouping, Rengo. If agreed upon, this would breach the 5% level for the first time in 31 years. Hisashi Yamada, a senior economist at Japan Research Institute and an expert on labour issues, has estimated overall increases of 4.2% to 4.3% based on the “quite strong” responses so far, and possibly more than 5% for top firms. Yamada has attributed the rise to the trend of higher wages globally, domestic labour shortages, and inflation. However, he also warned that the sustainability of such strong pay raises and whether the trend of wage hikes will spread to small and medium-sized companies going forward is uncertain.
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