Responding to government pressure, big Japanese companies, like Toyota, Hitachi and Panasonic, have announced the most generous pay raises in years.
It is seen as a victory for the Tokyo government’s efforts to kick-start a durable recovery and end deflation – that is where people put off spending as they believe prices will fall further.
Increases in base pay and seniority increases amount to 2.2-2.3 percent for major firms, while small and mid-size companies are offering over 2.0 percent, according to calculations by Hisashi Yamada, chief economist at the Japan Research Institute.
The world’s biggest carmaker Toyota, which is seen as a benchmark on pay raises, will give its Japan-based workers their biggest raise in monthly pay in 21 years in the business year starting in April.
Some big firms were also generous with bonuses, but for the thousands of companies below the top tier compensation is likely to be less generous and they employ the vast majority of Japanese workers.
In addition Takuji Okubo, chief economist with Japan Macro Advisors, pointed out that inflation is now picking up, which presents a problem: “Base wages are only going to rise by just one percent. So yes, the nominal wage rise itself is good news, but when you take inflation into consideration, ordinary workers will still have a bad year in terms of real income.”
Japan’s core consumer inflation – which excludes food prices but does include energy – rose at the fastest pace in more than five years at the end of 2013. Year-on-year it was up 1.3 percent in December.
Government spending and stimulus by the Bank of Japan are aimed at ending 15 years of deflation and uncertain growth.
But it is unclear if they will be enough to create the cycle of rising profits, wages and prices needed for a sustainable economic recovery.
In addition, although not all workers are getting the wage hikes, all will face a three percent rise in sales tax which comes in at the start of April.