On Wednesday, Toyota Motor announced the largest pay boost for factory workers in 25 years. As a result, expectations are higher that the central bank would be able to implement a significant policy change the following week due to the massive pay increases.
Concluding annual wage discussions on Wednesday, several major companies in Japan Inc., including Toyota, Panasonic, Nippon Steel and Nissan actively agreed to fully accept union demands for pay hikes.
This year, the negotiations, a defining characteristic of the typically cooperative relationship between labor and management in Japan, are closely watched. The pay increases emerging from these discussions appear to pave the way for the central bank to end its long-standing negative interest rate policy, which has been in place for years. This potential shift may happen as early as next week.
The largest automobile manufacturer in the world and a frequent predictor of the annual negotiations, Toyota, announced that it has acceded to the requests. Additionally, the company will implement record-breaking bonus payments and wage hikes of up to 28,440 yen ($193) each month. In keeping with previous practice, the corporation did not disclose the compensation increase as a percentage.
“We’re seeing strong momentum for wage hikes,” Yoshimasa Hayashi, the chief cabinet secretary and spokesperson for the Japanese government, said to reporters. “It’s important that the strong wage hike momentum will spread to small and mid-sized firms.”
Economists view substantial salary rises as a necessary condition for the Bank of Japan (BOJ) to halt negative rates, which have been in effect since 2016. Moreover, they anticipate the announcement that the BOJ’s long-term aims of stable prices and sustainable wage growth are within reach.
The bank will meet again on March 18–19 to set policy. The bank has been trying to revive a dormant economy by maintaining ultra-low rates and substantial stimulus. Additionally, it has been implementing these measures for longer than other wealthy nations.
According to Rengo, the largest trade union organization in Japan, employees at large companies have requested yearly raises of 5.85%. If approved, this would be the first time in 31 years that wages have exceeded the 5% threshold.
Hisashi Yamada, a senior economist at Japan Research Institute and labor expert, anticipated total rises of 4.2% to 4.3%, and potentially more than 5% for top firms based on the “quite strong” responses received thus far.
He ascribed the increases to inflation, internal labor shortages, and the trend of rising salaries internationally.
“Still, the sustainability of such strong pay raise and whether the trend of wage hikes will spread to small and medium-sized companies going forward is uncertain,” Yamada stated.
TRICKLE-DOWN EFFECT
The Japanese Association of Metal, Machinery and Manufacturing Workers (JAM), a union representing employees in small firms, stated that the wage increases they had secured exceeded expectations. Additionally, they highlighted a shift in the mindset of workers.. This was another encouraging development.
“The Japanese are finally starting to realize that the gap between wages inside and outside the country is widening significantly,” JAM Chairman Katahiro Yasukochi told reporters.
Seven out of ten Japanese workers are employed by smaller companies, but because they have less clout to pass costs on to customers, they have found it difficult to grant significant salary increases.
Toyota, a leading corporation, is facing government pressure to support downstream salary increases. This is aimed at ending a 22-month run of continuous declines in real wages, which are adjusted for inflation.
Takanori Azuma, the chief human resources officer at Toyota, expressed to reporters, “We do hope that our results could spread to all of our suppliers.”
“We need to continue asking tier-one suppliers to pass that down to tier-two suppliers and so on,” he said, while adding that ultimately, wage decisions were up to each individual company.
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