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Japan wage growth accelerates as reluctant retailers raise wages Reuters


Makiko Yamazaki and Kentaro Sugiyama

TOKYO (Reuters) – Japan’s retailers, usually among the toughest employers, are offering big pay rises for the second year in a row, meaning lower profits for companies, more spending money for workers and the green light for more central bank rate hikes.

Japan’s labor-intensive service sector has long managed to avoid large or permanent wage increases, using a vast pool of lower-paid part-time retirees and housewives.

But that began to change last year as a rapidly shrinking working-age population and rising inflation made it harder for retailers – which employ 10% of Japan’s workforce – to attract and retain staff.

Their tacit acceptance of successive wage increases, marking a breakthrough among low-wage service firms and small manufacturers, has not gone unnoticed by policymakers, including central bankers interested in signs that wage growth has held after 25 years of stagnation.

“There was a lot of positive talk about the wage outlook,” Bank of Japan Governor Kazuo Ueda said at a gathering of regional bank executives last week, referring to a meeting of BOJ branch managers a week earlier.

The central bank has predicated its latest cycle of interest rate hikes, including a second one expected at a policy meeting later this week, on a sustained “virtuous cycle” of higher wages supporting higher prices, for services as well as manufactured goods.

UA Zensen, a group representing retail, restaurant, textile and other industry unions, is seeking wage increases of 6% for full-time workers and 7% for part-time workers by 2025, surpassing the 5% base goal it had set Rengo, the national trade union, the largest trade union.

Talks on pay levels for 2025 usually end around March and take effect a few months after that.

“Solid wage increases will help put the Japanese economy on a growth path,” said Tamon Nishio, secretary general of UA Zensen.

“Many members of our union are from SMEs and work part-time. We want the momentum of wage increases to spread widely to our members to achieve real wage growth and create a positive cycle for the economy.”

Economists and executives, however, point to a number of doubts and potential downsides to this momentum, including rising costs for retailers and uncertainty over whether workers will be willing to spend their windfall.

“Large wage increases will increase our cost burden,” Takaharu Iwasaki, president of Japan’s largest food supermarket chain Life Corp., told reporters.

“But with the intensification of competition in hiring and retaining workers, we want to reward them with a solid salary.”

The company aims to increase salaries in 2025 similar to the previous year by 5% for permanent employees and 6% for part-time employees.

Retail conglomerate Aeon is also considering a 7% increase in hourly wages for the group’s 420,000 part-time workers, the same pace as last year.

“We want to continue to raise wages mainly for part-time workers as we did last year and the year before,” CEO Motoyuki Shikata said on a Jan. 10 earnings call.

“We hear from field managers that wage increases over the past two years have helped recruit workers.”

DOUBTS AND SHORTCOMINGS

These wage increases are beginning to be felt on retailers’ bottom lines.

At Life, labor costs rose by 7.9% and net profit fell by 3.4% in the nine months to November. Aeon slipped to a net loss in the same nine-month period, with wage hikes pushing up labor costs by 42.7 billion yen ($270.6 million).

Retailers have had little choice, as Japan’s working-age population continues to shrink from a peak of 86 million in 1995. A government think tank predicts the population between the ages of 15 and 64 will fall by about 20%, to 62 million , in the two decades to 2040. The pool of potential female and older part-time workers is also shrinking.

In addition, there are doubts about whether wage increases will translate into higher spending, especially as inflation tends to outpace wage growth. Without higher consumption, it would be difficult for companies to raise prices.

“Retailers are raising wages to retain workers, but it’s questionable whether they can continue to do so beyond this year,” said Shinichiro Kobayashi, chief economist at Mitsubishi UFJ (NYSE: ) Research and Consulting.

“Consumers have accepted a certain degree of price increases at retailers since the pandemic. But there are signs that they have grown tired of unabated price increases and are moving to discount stores to shop,” he said.

Indeed, workers seem to be in no mood to spend.

“Our savings mindset is so strong that I don’t think a higher salary would change people’s spending patterns that much,” said Miwako, a part-time worker at a major supermarket chain in Tokyo who asked to be identified only by her first name.

She said that while she hopes her salary will continue to rise, she would plan to save any pay increase rather than spend it.





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