Japan Kicks off Spring Wage Talks, Smaller Firms in Focus

Reuters

16:13 JST, January 22, 2025

TOKYO (Reuters) – Japan’s biggest business lobby Keidanren and trade unions kicked off annual labor talks on Wednesday that are likely to lead to another year of bumper wage hikes, though policymakers will be mainly focused on how far the momentum spreads to smaller firms.

With some of the biggest firms already promising to raise pay substantially for this year, the prospect of large wage hikes is seen supporting the case for the Bank of Japan to increase interest rates later this week.

Japan’s big firms are expected to offer their unions wage hikes of 4.74% on average this year, according to a poll of 35 economists conducted Dec. 23-Jan. 8 by Japan Centre for Economic Research, a private think tank.

The estimate, although lower than last year’s 5.33% average, is considered solid in a country where wages were stagnant for decades until 2022, when rising inflation and structural labor shortages piled pressure on firms to compensate employees with higher pay.

Japanese companies agreed to an average 5.1% wage hike in 2024, the biggest increase in three decades, according to Rengo, the nation’s largest union.

Rengo is seeking wage hikes of at least 5% in 2025, while setting a target of at least 6% for smaller firms to narrow the income gap with workers at large firms.

“We want the strong momentum from the last two years to take hold this year,” Keidanren chief Masakazu Tokura said at a meeting of executives from the business lobby and Rengo, the nation’s largest union.

He also emphasized that it’s crucial for employees at small and medium-sized firms and non-regular workers, which account for about 70% and 40% of total employment respectively, to receive higher wages.

Japan’s small firms are already spending far more of their profits on wages than their bigger counterparts and could struggle to keep hiking pay.

“Large firms will continue to lead the wage growth momentum this year, but smaller firms are finding it hard to pass on rising labor costs to prices and having their profits squeezed,” said Satoshi Fujii at research firm Teikoku Databank. (Reporting by Makiko Yamazaki Editing by Shri Navaratnam)