By Makiko Yamazaki
TOKYO (Reuters) – Japan’s biggest business lobby Keidanren and unions began annual labor talks on Wednesday that are likely to lead to another year of big wage increases, although policymakers will be largely focused on how much momentum has spread to smaller companies.
With some of the biggest companies already pledging to raise wages significantly for this year, the prospect of big wage increases supports the case for the Bank of Japan to raise interest rates later this week.
Big Japanese companies are expected to offer their unions an average 4.74% wage increase this year, according to a survey of 35 economists conducted from Dec. 23-Jan. 8 of the Japan Center for Economic Research, a private think tank.
The estimate, though lower than last year’s average of 5.33%, is considered solid in a country where wages have stagnated for decades until 2022, when rising inflation and structural labor shortages have increased pressure on companies to compensate employees with higher wages.
Japanese companies have agreed to an average wage increase of 5.1 percent in 2024, the biggest increase in three decades, according to Rengo, the country’s largest union.
Rengo is calling for a wage increase of at least 5% in 2025, while setting a target of at least 6% for smaller firms to reduce the income gap with workers in large firms.
“We want the strong momentum of the last two years to come alive this year,” Keidanren chief Masakazu Tokura told a meeting of executives from the business lobby and Rengo, the country’s largest union.
He also emphasized that it is crucial that employees in small and medium-sized enterprises and non-permanent workers, who make up about 70 percent and 40 percent of total employment, respectively, receive higher wages.
Japan’s small firms already spend far more of their profits on wages than their larger counterparts and could struggle to keep wages high.
“Large companies will continue to lead the momentum in wage growth this year, but smaller companies are finding it difficult to pass on rising labor costs to prices and shrinking profits,” said Satoshi Fujii of research firm Teikoku Databank.
