* Abe to make final decision on sales tax hike on Oct. 1
* Nearly half will not raise wages to offset sales tax hike
* 37 pct unsure of wage plans if sales tax hiked
By James Topham
TOKYO, Sept 20 Japanese companies are largely
ignoring Prime Minister Shinzo Abe's calls for higher wages in
the face of an expected sales tax increase, a Reuters poll
shows, underscoring the difficulties the government faces in
trying to defeat entrenched deflation.
Abe will make a final decision on Oct. 1 about whether to
lift the tax to 8 percent from 5 percent in April. While
necessary to bolster state coffers, the hike threatens to take
the wind out of the success he has had with boosting stocks and
weakening the yen.
Now that Japan Inc has begun to benefit from his bold
monetary and fiscal policies, the prime minister wants companies
to return the favour by lifting wages, which in turn will boost
consumption and prices, and make the recovery sustainable.
But the Reuters Corporate Survey shows firms remain averse
to raising base pay, preferring if anything to boost bonuses -
which can be scaled back later if the economy weakens.
Just under half of 266 companies answering a question on
what they will do if the tax is raised as planned, said they
will not respond with any increase to overall pay - including
Only 13 percent plan to offset the tax hike with any pay
increases, while 37 percent do not yet know what they will do,
according to the survey which was conducted between Aug. 30 and
Abe meets with business and labour leaders on Friday to make
his case on wages. But comments from respondents suggest firms
are still worried about earnings levels and that any
improvements in profits have not been enough for them to justify
"Due to earnings, we are just not in a position to raise
wages," said an executive at a wholesale firm.
THE PEOPLE'S BURDEN
The survey shows some 60 percent of firms do expect profits
to rise in the year that began in April - largely in line with
a previous poll three months ago. Big automakers like Toyota
Motor Corp have also said they expect sharp climbs in
income on the back of a weaker yen.
But 15 years of deflation and rising import costs due to the
softer yen have made firms cautious. And they argue, they
shouldn't be compelled to lift wages, just because the
government decides to hike taxes.
"The burden of the tax rise should essentially be on the
Japanese people," said an executive at a metals and machinery
maker, who is planning to keep the status quo.
"We need to keep an eye on prices."
Looking ahead to annual salary negotiations, 60 percent
described their basic stance as to lift bonuses but not base
wages, while 24 percent were not considering any pay increases,
according to the questionnaire.
Higher bonuses boost the economy less than base pay
increases of the same amount because households, seeing the
bigger bonus as a likely temporary windfall, tend to save more
of it than they would a permanent wage increase.
"If real wages decline, the natural implication is that real
consumption should decline as well," said Takuji Okubo, chief
economist at Japan Macro Advisors, who reviewed the survey
"And since consumption has been the driver of Japan's recent
economic growth, there's a substantial risk that growth could
severely weaken after April 2014."
The survey, conducted for Reuters by Nikkei Research, polls
upper management at 400 companies capitalised at more than 1
billion yen each. The firms, which are split evenly between
manufacturers and non-manufacturers, are not required to answer
every question and provide responses on condition of anonymity.
On Thursday, the Reuters Tankan survey, which is taken
alongside the corporate poll, found that confidence among
Japanese manufacturers slipped in September from a three-year
high, as concerns about slowing growth in emerging markets hit
exporters and a weaker yen pushed up import costs.
(Editing by William Mallard and Edwina Gibbs)