Written by Makiko Yamazaki
TOKYO (Reuters) – Keidanren, Japan's top business lobby, and labor unions began annual labor talks on Wednesday that are likely to lead to another year of big wage increases, although policymakers will mainly focus on how the momentum spreads to… Smaller companies.
With some of the largest companies already promising to raise wages significantly this year, the prospect of significant wage increases supports the Bank of Japan's case for raising interest rates later this week.
Major Japanese companies are expected to offer their unions pay increases of 4.74% on average this year, according to a survey of 35 economists conducted from December 23 to January. 8 by the Japan Economic Research Center, a private research center.
This estimate, although lower than last year's average of 5.33%, is considered strong in a country where wages remained stagnant for decades until 2022, when rising inflation and structural labor shortages will increase pressure on companies to compensate employees with higher wages.
Japanese companies have agreed to an average 5.1% pay increase in 2024, the largest increase in three decades, according to Ringo, the country's largest union.
Ringo aims to increase wages by at least 5% in 2025, while setting a target of at least 6% for small businesses to narrow the income gap with workers in large companies.
“We want the strong momentum we have seen over the past two years to take hold this year,” Keidanren President Masakazu Tokura said during a meeting of executives from the business lobby and Ringo, the country's largest union.
He also stressed that it is essential that employees in SMEs and informal workers, who represent about 70% and 40% of total employment respectively, receive higher wages.
Small businesses in Japan already spend much more of their profits on wages than their larger counterparts, and may struggle to continue to raise wages.
“Large companies will continue to lead the wage growth momentum this year, but smaller companies are finding it difficult to pass on rising labor costs to prices and shrinking their profits,” said Satoshi Fujii of research firm Teikoku Data Bank.
