Cautious Japan Inc offer smaller wage hikes as economy wobbles

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TOKYO (Mar 13): Big Japanese firms offered smaller pay increases at annual wage talks on Wednesday as the economy sputters, tempering hopes that domestic consumption will offset external risks to growth. 

Major firms are set to raise wages for a sixth straight year as Prime Minister Shinzo Abe kept up the pressure on businesses to boost pay in an effort to beat deflation that has dogged Japan for nearly two decades.

But as economic growth slows, firms have grown wary about offering big pay increases because that commits them to higher fixed costs at a time of uncertainty as company profits are leveling off.

Results of the “shunto” talks between management and unions - announced by blue chips in sectors like cars and electronics - set the tone for wage hikes across the nation, which have implications for consumer spending and inflation.

“I worry the momentum towards wage hikes may weaken as underlying inflation remains weak and there is a strong sense of uncertainty,” said Hisashi Yamada, senior economist at Japan Research Institute.

“Uncertainty is high on the external outlook such as the U.S.-China trade war and Europe’s unstable politics. On top of that, a national sales tax is scheduled to increase in October.” 

A slowdown in the global economy, the Sino-U.S. trade war and trepidation over the final shape of a deal to seal Britain’s exit from the European Union have sharply increased strains on businesses worldwide.

Faced with the heightened uncertainty about the growth outlook, cautious Japanese firms usually prefer to offer one-off bonuses and other benefits depending on annual profits.

They tend to focus more on the annual total sum payment than fixed base salaries, which will determine retirement payment and pension benefits.

Bellwether Toyota Motor Corp, Japan’s largest automaker, offered on Wednesday a pay raise of 10,700 yen ($96.21) on average, down 1,000 yen from last year, domestic media reported, underscoring growing pressure on businesses.

Electronics giants such as Panasonic Corp, offered a base pay raise of 1,000 yen, down 500 yen from last year.

A survey by the Institute of Labour Administration, a think tank, predicted wage growth will slow to 2.15 percent this year, pulling further away from the 17-year peak of 2.38 in 2015, despite hefty cash piles at Japanese corporations. 

A Reuters Corporate Survey last month found a slim majority - 51 percent of firms polled - saw wages rising around 1.5-2 percent this year, versus last year’s 2.26 percent average across all Japanese industries.

PAY HIKE OR WORK-STYLE REFORM

In the coming fiscal year from April 1, Abe’s government will start to implement work-style reform to curb Japan’s notoriously long work hours.

The reform also includes “equal pay for equal work” aimed at narrowing the pay gap between full-time employees and contract workers or part-timers, and raising the retirement age to cope with the ageing population.

The move has shifted focus away from pay hikes with both unions and management, dashing policymakers’ hopes of stoking a virtuous cycle of a tight job market boosting wages to stimulate consumption and spur inflation to the BOJ’s 2 percent target.

Japan’s unions tend not to be so aggressive in pressing their demands as those in the West because they attach greater importance to job security and retain a sense of company loyalty.

The dwindling union membership has deprived unionists of bargaining powers, with companies hiring more non-unionised part-timers and nonregular employees, who represent nearly 40 percent of workers. 

“At this year’s shunto, both companies and unions don’t seem to put greater emphasis on wage hikes than before,” said Kiichi Murashima, economist at Citigroup Global Markets Japan.

“Instead, they are considering a wider range of issues like pay disparity, labor productivity and work-life balance.”