(Bloomberg) -- Japanese Prime Minister Shigeru Ishiba called on companies to continue ramping up pay for workers, as his government seeks to secure stable inflation and economic growth while also responding to the rising cost of living.
“I asked for cooperation in next year’s wage negotiations for a substantial wage increase, building on this year’s momentum,” Ishiba said after meeting with labor union and business leaders. Average wage deals this year hit a 33-year-high as firms responded to demands to raise pay amid ongoing inflation.
Ishiba met with key players in the annual pay talks, including Tomoko Yoshino, chair of Japan’s biggest trade union federation Rengo and Masakazu Tokura, head of the business lobby Keidanren.
The premier’s push comes as unions and companies prepare for pay negotiations that will culminate next spring. The discussions are being closely watched by the government and the Bank of Japan as authorities view wage gains as a key determinant for achieving a positive economic growth cycle.
In March, the BOJ raised interest rates for the first time in 17 years shortly after the initial results of Rengo pay deals for 2024 pointed to the biggest gain in over three decades.
Higher pay is also needed to mollify voter dissatisfaction over a cost-of-living crunch amid ongoing inflation.
Despite strong nominal wage gains this year, real wages have remained largely stagnant due to persistently high inflation. Real wages across the country have only risen in two months over the last year, while the nation’s key price gauge has stayed at or above the BOJ’s 2% target for over 30 months.
In Tuesday’s discussions, the prime minister stressed he wants structural wage gains to take root as a key part of achieving a virtuous cycle, according to Masakazu Tokura, head of Japan’s biggest business lobby, Keidanren.
For the coming year, Rengo is again targeting gains of at least 5% across all sectors, along with a 6% increase at smaller firms. This year it managed to achieve gains of 5.1% overall and a 4.45% raise at firms with fewer than 300 employees, in results that continued to show a gap between big and small firms.
“It’s vital that wage gain trends extend to small and mid-sized businesses as they account for 70% of employment,” Ishiba said.
The government has met with union and business leaders in the run-up to negotiations for three consecutive years. There were three such meetings before the conclusion of the 2024 talks.
“We aim to create an economy where wage increases stably beat price increases,” the prime minister said Tuesday.
In an effort to support households contending with higher costs of living, Ishiba’s cabinet last week approved a ¥21.9 trillion ($142 billion) economic package that includes steps to promote wage increases and help mitigate the impact of inflation. The government plans to provide cash handouts to low-income households and resume subsidies for gas and electricity bills, according to the 60-page package outline.
As for wage support, the government will help fund investments to improve working conditions at smaller firms and promote fair business practices that allow SMEs to pass rising costs onto corporate consumers through supply chains. The premier emphasized that raising wages for all generations is a top priority.
Ishiba has also pledged to achieve a minimum wage of ¥1,500 per hour in the 2020s, bringing forward the already ambitious goal proposed by his predecessor Fumio Kishida. He asked cabinet ministers to put together a plan by next spring, so that the minimum wage can keep rising.
The central bank is also closely following the developments of wage negotiations as it considers the timing of its next interest rate hike. BOJ Governor Kazuo Ueda said last month that it would be good in a general sense for the bank’s goals if wage increases are about the same next year as they were this year, while noting that the bank won’t base its decision solely on the outcome of the annual wage talks.
--With assistance from Yuko Takeo and Akemi Terukina.
(Updates to add more background, comments.)
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