Japan Firms' Wage Gains Slow on Export Risks From Trump, Brexit

  • Pay raises at big companies down for second year, results show
  • Cautious companies undermine BOJ campaign to end deflation

Japan Inc.'s Big Profits Didn't Translate to Wages

Record profit at Japan’s biggest companies didn’t translate to big raises for wage earners at spring pay negotiations as prospects for exporters were clouded by risks to trade and growth in the U.S. and Europe.

Household names from Panasonic Corp. to Toyota Motor Corp., Nissan Motor Co. and Hitachi Ltd. announced smaller annual wage increases Wednesday for next fiscal year. The slower gains reflect rising concern among exporters about overseas markets following the election of President Donald Trump, said Takeshi Minami, chief economist at Norinchukin Research Institute.

“The results are weak, especially at manufacturing exporters,” Minami said. “I think the great uncertainty over the Trump administration’s trade policy is having an impact on the results.”

Monthly base pay increases at five of the largest companies, including the country’s three biggest manufacturing employers, rose 1,240 yen ($11) on average, based on results of the annual spring pay negotiations between major firms and their unions. Trump has threatened to impose a border-adjusted tax that could hurt Japanese exporters, including Toyota, while the U.K.’s plan to exit the European Union could undercut automakers such as Nissan, which builds cars there for export.

Profit at Japanese companies climbed to a record 20.8 trillion yen in the three months ended Dec. 31, according to the Ministry of Finance.

Toyota, Japan’s largest manufacturer and employer, sees U.S. trade policy along with elections in Germany and France as among its biggest risks in 2017, Tetsuya Otake, managing officer at the carmaker, told reporters last month. The carmaker will closely monitor Trump’s policies, he said.

Monthly Base Pay Increases by Company

20162017
Toyota1,500 Yen1,300 Yen
Nissan3,0001,500
Panasonic1,5001,000
Hitachi1,5001,000
NTT1,6001,400
Average1,8201,240

Trade restrictions are not the only potential challenge for exporters. The Japanese currency, which has shed about 8 percent of its value against the dollar since Trump’s election, has a history of strengthening when risks to global economic growth rise. That happened after the U.K. voted to exit the European Union, eroding the yen value of Japanese companies’ overseas earnings.

Read about the Brexit threat to U.K. auto investment here.

“It’s no surprise companies have become more cautious after the rise in the yen last year,” Peter Tasker of hedge fund Arcus Investment Ltd., said by email. The slower increases in wages probably represents “a mid-cycle pause.” He said a Japan’s labor shortage will start to have an effect and wages will have to rise.

The spring wage talks took place with unemployment hovering below 3 percent and with a labor shortage that’s raising pressure on companies to improve working conditions. Yamato Holdings Co., the country’s biggest express delivery firm, is facing demands for improvements in scheduling and has already been raising wages as the volume of packages from e-commerce websites climbs.

Some companies are becoming more cautious after raising wages over the past few years, Rikio Kozu, Japanese Trade Union Confederation president, told reporters Wednesday. Japan can’t exit deflation unless wages rise when inflation is near zero, he said.

While the monthly base pay increases announced Wednesday reflect a weakening wage trend, they don’t necessarily give a precise measure of total compensation. Typically, pay increases includes significant annual bonus payments and seniority-based raises.

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