Japan's unions ask for wage hikes on back of Abenomics stimulus

TOKYO Fri Feb 7, 2014 2:01am EST

TOKYO Feb 7 (Reuters) - A trade union has demanded Japan's largest steelmaker, Nippon Steel & Sumitomo Metal Corp, hike basic wages for the first time in 14 years and share the profits generated by the government's "Abenomics" stimulus policies.

Japan's annual wage negotiations that started on Friday are being watched closely as an indicator of whether Prime Minister Shinzo Abe's push to end almost two decades of stagnant economic growth and deflation in Japan will succeed.

A year of monetary stimulus and fiscal spending has led to surging corporate profits and Abe wants to translate that into spending power for workers to boost consumption and investment, as well as help offset a national sales tax hike from April.

The union representing over 27,400 workers at Nippon Steel asked for an average increase of 3,500 yen ($34.36), or about one percent, in the monthly base salary for unionised workers. The raise would apply for the 2014 and 2015 fiscal years. The company last raised base wages in 2000.

"Japan needs to emerge from deflation to be reborn with sustainable growth and what we need is a higher income for all workers to help boost consumption," Tadayuki Ohmori, the head of the union, said at the start of negotiations at the company's headquarters in central Tokyo.

Japan Federation of Basic Industry Workers Unions (JBU), an umbrella group that includes unions representing workers in steel and shipbuilding, agreed this week to seek for a minimum one percent base pay rise each of the next two years. Like Nippon Steel, those unions submitted their requests on Friday.

Other unions representing workers at companies like Toyota Motor Corp and Hitachi Ltd are preparing to demand a pay hike next week. The companies are to reply to the wage proposals by mid-March.

RECORD LOW LEVEL

Wages in Japan stopped falling for the first time in three years in 2013, but they hovered near a record low level. Monthly average cash earnings for all workers came to 314,150 yen ($3,100) last year, down 15 percent from the peak level of 1997, according to government data.

But with solid construction demand backed by higher government spending and a rush to build homes and buy new cars ahead of a sales tax increase, earnings have surged at many Japanese companies.

Nippon Steel, for instance, posted a nine-fold jump in recurring profit in the December quarter. A one percent wage hike for its 83,187 group employees would add about 3.5 billion yen to fixed cost, or about 1.6 percent of its predicted group net profit of 220 billion yen for the year through March 2014.

The company's president, Hiroshi Tomono, who also serves as chairman of the Japan Iron and Steel Federation, has said his company's preferred way of rewarding employees is with bonuses that can rise and fall with earnings.

Japanese companies have been hoarding cash for years, instead of spending on equipment or raising salaries, because of a widespread view that Japan would remain mired in deflation. Corporate Japan sits on a cash pile of some 220 trillion yen, Bank of Japan data shows.

With a lack of confidence in sustained economic growth and increasing numbers of low-paid part-timers, regular pay has declined for eight consecutive years.

Some economists expect wages will rise moderately this year due to improved corporate earnings, a tighter job market and pressure from the Abe administration.

"Some companies are responsive to the government request to increase wages and those that do raise basic salaries are likely to have a psychological effect on others," said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute.

Other observers are more cautious, saying wages will struggle to pick up in the next business year.

"How can you expect companies to raise salaries when revenue is likely to shrink after the sales tax hike?" said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.

"If companies try to raise salaries despite lower profits next fiscal year, they may end up cutting jobs or put a lid on new hiring," Shirakawa said. ($1 = 101.8600 Japanese yen) (Additional reporting by Tetsushi Kajimoto; Editing by Aaron Sheldrick and Raju Gopalakrishnan)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.