Japan’s base wages adjusted for inflation last year matched a 16-year low in 2009 when the world was gripped by recession, posing a risk to consumer spending as the nation girds for a higher consumption tax.
Pay excluding bonuses and overtime payments dropped to 98.9 in 2013 on a labor ministry index released today that takes price changes into account, equaling the level four years earlier. The gauge is based at 100 in 2010 in data back to 1990.
Prime Minister Shinzo Abe is calling on firms to boost wages to sustain a reflationary effort so far driven by stimulus and the yen’s 18 percent drop against the dollar last year. Amid a backdrop of market turbulence, business and union leaders met today to start annual pay talks -- due to end in March, a month before a 3-percentage-point increase in the sales levy.
It’s “extremely important” that companies use profits boosted by Abenomics to raise wages and create jobs, Chief Cabinet Secretary Yoshihide Suga said today in Tokyo, adding this was needed to create a positive cycle, in which economic growth propels profits, employers raise pay and people spend more.
The Nikkei 225 Stock Average closed today up 1.2 percent, leaving its 2014 decline at about 13 percent, following a 57 percent surge last year -- its biggest gain since 1972. The yen rose 0.5 percent against the dollar to 101.21 as of 5:11 p.m. in Tokyo, climbing from a five-year low of 105.44 on Jan. 2.
“The current market turmoil won’t affect wage negotiations,” Hiromasa Yonekura, head of Keidanren, Japan’s largest business lobby group, told reporters today after meeting in Tokyo with Rengo, the nation’s largest trade union group. “Each company will do their utmost to increase wages depending on their earning situation.”
Toyota Motor Corp. this week reported profit quintupled last quarter and raised its forecast for the fiscal year ending March to an unprecedented 1.9 trillion yen ($18.8 billion). The union of the world’s biggest carmaker said last month it was seeking a raise in workers’ base salaries for the first time in five years.
In a December interview, Abe urged companies to lift salaries faster than gains in the cost of living to help pull the nation out of a 15-year deflationary rut, stressing the importance of an increase in base wages. The prime minister has met five times since September with business and union chiefs to persuade them to boost workers’ pay.
Nobuaki Koga, head of Rengo, or the Japanese Trade Union Confederation, said last month it would seek overall base-salary increases of more than 1 percent in spring labor negotiations, and 2 percent for workers at small- and medium-sized companies and non-regular workers.
“Base salaries may not rise as much as Rengo has requested” as executives may not be confident enough of Japan’s economic recovery to raise wages, said Yoshiyuki Suimon, an economist at Nomura Securities Co. in Tokyo.
Monthly wages excluding overtime and bonus payments fell 0.2 percent in December from a year earlier to 241,525 yen on average per worker, extending a decline to 19 months, the labor ministry said today. Overall wages rose 0.8 percent from a year earlier to 544,836 yen, helped by a 1.4 percent climb in winter bonuses and increased overtime pay.
Boosted by the Bank of Japan’s unprecedented easing in pursuit of 2 percent inflation, consumer prices excluding fresh food increased 1.3 percent in December from a year earlier, a pace not seen since 2008.
Inflation will accelerate five times faster than wage gains in the year starting April, according to Bloomberg News surveys. Higher prices, coupled with the sales-tax rise, threaten to erode household spending power.
Having injected monetary and fiscal stimulus into the economy, Abe’s next challenge is make advances in stripping away regulations to encourage business investment.
“Wages might rise a little bit this year, but it won’t be sustainable unless the government pushes through policies to improve productivity,” said Koya Miyamae, a Tokyo-based economist at SMBC Nikko Securities Inc. “It’s easy to boost prices, but it’s much more difficult to have companies raise wages.”