Japan’s Major Firms to Offer Strong Wage Hikes for Third Year

Japan’s largest companies are set to deliver significant wage increases for the third consecutive year, helping workers cope with inflation and addressing labour shortages.

• Last year’s shunto wage talks resulted in a 5.1% average pay hike, the highest in 33 years, following 3.58% in 2023. This year’s increases are expected to be similar.
• Labour union group Rengo is pushing for a 6.09% wage increase, surpassing last year’s 5.85%—a level not seen in 32 years. Some firms, like Denso, have already agreed to record hikes.
• The focus is now on small and mid-sized businesses, which employ 70% of Japan’s workforce, to see if they can match large firms’ wage increases.
• Higher wages are crucial for Bank of Japan policy decisions, as well as Prime Minister Shigeru Ishiba’s efforts to boost consumer spending amid stagnant real wage growth.
• January’s inflation rate rose to 4.7%, the highest in two years, leading economists to warn that wage increases of 5-5.5% may only offset inflation rather than drive new spending.

Bank of Japan meet next week. March 18 and 19. Expectations are the Bank will keep its main policy rate unchanged.