©Reuters. FILE PHOTO: Workers install the fuel cell power system in a Toyota Mirai at a Toyota Motor Corp. plant in Toyota in Aichi Prefecture, Japan, on April 11, 2019. Photo taken on April 11, 2019. REUTERS/Joe White/File Photo
By Tetsushi Kajimoto and Anton Bridge
TOKYO (Reuters) -Toyota Motor agreed on Wednesday to give workers its biggest pay rise in 25 years, raising expectations that bumper pay rises will give the central bank leeway to make a key policy change next week.
Toyota (NYSE:), Panasonic (OTC:), Nippon Steel and Nissan (OTC:) were among some of Japan Inc’s biggest names that agreed to fully meet union demands for wage increases during annual wage negotiations that conclude Wednesday.
The talks, long a hallmark of the usually collaborative relationship between Japanese management and workers, are being closely watched this year as wage increases are expected to help pave the way for the central bank to end its interest rate policy negative duration years. as early as next week.
Toyota, the world’s largest automaker and traditionally a focus of annual talks, said it had accepted demands for monthly salary increases of up to 28,440 yen ($193) and record bonus payments. As in the past, the company did not provide a percentage for the salary increase.
“We are seeing strong momentum towards wage increases,” Japan’s top government spokesman and chief of staff, Yoshimasa Hayashi, told reporters. “It is important that the strong momentum for wage increases spreads to small and medium-sized businesses.”
Prime Minister Fumio Kishida has made ending years of lean wage growth a top priority to revive weak consumer spending. Japan’s wage increases have remained well below the average for the OECD group of rich countries.
The Bank of Japan is also watching the results closely as a key data point in deciding when to end negative rates, which have been in place since 2016.
The bank, which has stuck with massive stimulus and ultra-low rates for years longer than other developed countries in an effort to revive a moribund economy, will hold its next policy-setting meeting on March 18-19.
“The outcome of this year’s annual wage negotiation is crucial” to deciding the timing of an exit from massive stimulus, Governor Kazuo Ueda told parliament on Wednesday.
According to Japan’s largest labor group, Rengo, workers at large companies have demanded annual raises of 5.85%, which if agreed would surpass the 5% level for the first time in 31 years.
Hisashi Yamada, senior economist at the Japan Research Institute and an expert on labor issues, estimates an overall increase of between 4.2% and 4.3% based on “fairly strong” responses so far, and perhaps more than 5% for the most important companies.
It attributed the increases to the trend of higher wages globally, domestic labor shortages and inflation.
“However, the sustainability of such large wage increases and whether the trend of wage increases will extend to small and medium-sized enterprises in the future is uncertain,” Yamada said.
TRICKLE-DOWN EFFECT
In a further positive sign, the Japan Association of Metal, Machinery and Manufacturing Workers (JAM), a union representing workers at small manufacturers, said the pay rises granted to members had exceeded expectations and that there has been a change in the mentality of the workers.
“The Japanese are finally starting to realize that the gap between wages inside and outside the country is widening significantly,” JAM President Katahiro Yasukochi told reporters.
Smaller companies employ seven in 10 workers in Japan, but they struggle to offer large wage increases because they have less power to pass costs on to customers.
Akihiro Kaneko, president of the Japan Council of Metalworkers’ Unions, echoed Yasukochi’s sentiment, saying he hoped this year’s results could lead to a virtuous cycle of higher wages and inflation.
Major companies like Toyota are under pressure from the government to ease downstream wage increases so that real wages, adjusted for inflation, can reverse a 22-month streak of consecutive declines.
“We hope that our findings can spread to all our suppliers,” Toyota’s human resources head, Takanori Azuma, told reporters.
“We need to continue to ask the first-tier suppliers to pass it on to the second-tier suppliers and so on,” he said, adding that wage decisions are ultimately up to each individual company.