- Abe needs companies to share more of their profits in wages
- Higher salaries vital for consumer spending and inflation
Regular wages in Japan rose for a seventh consecutive month as the government of Prime Minister Shinzo Abe presses businesses to boost salaries.
Base pay climbed 0.4 percent in September from a year earlier, the labor ministry said Monday. Overall labor cash earnings, which include overtime and special payments, increased by 0.6 percent and wages adjusted for inflation advanced 0.5 percent.
The central bank needs to see higher earnings so Japanese consumers can buy more to help sustain price gains in a nation that has been dogged by two decades of stagnation. Abe is depending on businesses to pour more of their profits into capital spending and salaries as he tries to expand by one-fifth an economy that has recently struggled to grow at all.
“The government’s pressure on businesses to raise wages remains strong, contributing to the gains,” said Yoshitaka Suda, an economist at Nomura Holdings Inc. “Wages will probably continue to rise as corporate profits are improving and supply-demand conditions in the labor market are tight.”
Chief Cabinet Secretary Yoshihide Suga said last week that reducing the tax burden for high-earning companies would boost investment and wages. Some members of Japan’s Council on Fiscal and Economic Policy propose rewarding companies that raise wages or capital expenditure by giving them a tax break, Reuters has reported.
One difficulty in all this is that the idea of businesses paying higher wages clashes with another of Abe’s goals: for companies to deliver better returns on equity.
Bank of Japan board member Yutaka Harada has said that 3 percent wage growth is needed for the BOJ to achieve its 2 percent inflation target.
“The continued gains in the regular wages are good,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo. “But the growth in wages is low and insufficient to boost consumer spending.”
Household spending has fallen in seven of the nine months through September this year. The economy contracted by an annualized 1.2 percent in April-June from the first quarter of the year, and economists forecast a drop of 0.3 percent in the three months ended Sept. 30.