By Tetsushi Kajimoto
TOKYO (Reuters) – Three-fourths of Japanese companies aren’t raising annual bonuses this summer, a Reuters poll found, a sign many see growth sputtering in the world’s third-largest economy as the U.S.-China trade war stokes fears of a global recession.
In Japan, bonuses serve as a barometer of business confidence, as companies prefer using them to adjust pay up or down – boosting bonuses when business is good and slashing them in tougher times – rather than tweaking base pay, which is hard to reduce.
The Reuters Corporate Survey found 48% of Japanese firms expected summer bonuses to remain unchanged from last year, while 26% will raise them and 24% cut them. Some 2% have no bonus system.
“We kept summer bonuses unchanged from last year, since we could not expand sales due to labour shortages,” a manager at a transportation company wrote in a survey response.
The July 31-Aug. 14 poll results compares with a survey by Japan’s major business lobby Keidanren, which showed this month that big firms are cutting bonuses overall by 3.4%.
“Bonus payments are relatively high given gains over the past few years, but uncertainty over the global economy and recent yen rises could make it struggle to raise further,” said Yusuke Shimoda, senior economist at the Japan Research Institute, who reviewed the Reuters poll results.
Weak wage growth and tame consumer spending have hampered Japan’s efforts to climb out of two decades of deflation and stagnation, keeping inflation far below the Bank of Japan’s 2% target.
That could also raise concerns that Prime Minister Shinzo Abe’s plan to increase the national sales tax to 10% in October from 8% could deal the economy a blow. A 2014 hike from 5% triggered a deep downturn.
In a positive sign for wages, though, nearly two-thirds of the firms in the Reuters survey agreed with Abe’s aim of raising the minimum wage to 1,000 yen (£7.74) an hour at an early stage from the current national average at 874 yen, while 35% opposed.
“Those facing a labour crunch or employing part-timers may face the need to raise wages to lure workers,” Shimoda said. “Companies may also be concerned about the weak purchasing power of low-wage earners who could suffer from the planned tax hike.”
Many companies said that by increasing the minimum wage Japan can better cope with labour shortages, boost domestic demand and raise labour productivity, which is the lowest among G7 advanced nations.
“The United States carries out sizeable wage hikes every year and confronts streamlining head-on. As a result, inefficient corporations are weeded out,” a manager at an electric machinery maker wrote in the survey. “Japan must also carry out reforms aimed at rationalisation through large-scale wage increases.”
The survey, conducted monthly for Reuters by Nikkei Research, canvassed 504 midsize and large Japanese corporations, of which some 240 firms responded on condition of anonymity.
(Reporting by Tetsushi Kajimoto; Editing by William Mallard & Shri Navaratnam)