March 13, 2018 / 8:57 AM / in 3 months

Japan Inc to raise wages but many short of PM Abe's 3 pct target

TOKYO (Reuters) - Big Japanese companies agreed on Wednesday to raise wages for a fifth year but many are expected to fall short of meeting Prime Minister Shinzo Abe’s 3 percent goal, adding to doubts the central bank will be able to hit its inflation target.

FILE PHOTO: Construction workers erect scaffoldings for Electric Power Development Co.(J-Power)'s No.2 unit of coal-fired thermal plant currently under construction in Yokohama, south of Tokyo August 7, 2007. REUTERS/Yuriko Nakao/File Photo

The results of the “shunto” spring wage negotiations between corporate management and unions, announced by the big automobile and electronics companies, set the tone for wage hikes across the nation and could give hints about future consumer spending.

Abe has been campaigning for a 3 percent gain to spur consumption and banish the deflation that has dogged Japan’s economy for nearly two decades.

Bank of Japan Governor Haruhiko Kuroda has also urged a similar increase to nudge up inflation to the BOJ’s long elusive 2 percent target.

Wage growth is expected to accelerate given bigger bonuses, and rising pay at small firms and for part timers. Still, it won’t reach Abe’s target or be strong enough to clear hurdles for the central bank to start scaling back its massive stimulus program, some analysts say.

“The Bank of Japan won’t move this year. It will probably wait to see results of next year’s shunto,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

Even though many Japanese firms are sitting on piles of cash from healthy earnings, and the country’s labor market is increasingly tight, companies are wary of boosting base salaries because that commits them to higher fixed personnel costs. Instead, they prefer one-off bonuses and other benefits.

FILE PHOTO: Japan's Prime Minister Shinzo Abe gestures as he makes a speech at an opening of a new session of parliament in Tokyo, Japan January 22, 2018. REUTERS/Kim Kyung-Hoon/File Photo

Toyota Motor Corp (7203.T), considered a bellwether in the country’s annual wage negotiations, agreed to raise monthly base salaries by more than 1,300 yen ($12.18) for the coming year, more than last year but below the union’s demand for 3,000 yen.

Including increases in base salary for full-time employees and pay for contract workers, Japan’s largest automaker said that overall monthly payment for all union members would increase by an average 3.3 percent.

Honda Motor Co (7267.T) and Hitachi Ltd (6501.T) said they would raise annual salaries — including bonuses and other benefits — by more than 3 percent and 4.1 percent, respectively.

“We have agreed to the increase as we would like to contribute to the country’s economic development and its manufacturing culture,” Toyota senior managing officer Tatsuro Ueda told reporters in Toyota City, central Japan.

GOVERNMENT PRESSURE

Over the past four years, major companies agreed to raise wages about 2 percent each spring. The bulk of that - about 1.8 percentage points - comes automatically under Japan’s seniority-based employment system. Anything beyond that is a hike in “base pay.”

Several economists have forecast major companies would agree to base pay hikes of 0.5-0.6 percent, which with the seniority-based automatic salary rise would bring wage growth in the vicinity of 2015’s 2.38 percent rise, which was a 17-year high.

“Wage hikes are regaining momentum, but they are still shy of reaching 3 percent at most companies,” said Hisashi Yamada, director at Japan Research Institute.

“I doubt companies can sustain wage hikes without government pressure. They must steadily raise wages on their own initiative to revamp business structure and improve their ability to grow.”

Chief Cabinet Secretary Yoshihide Suga said he expects the tide of wage hikes reflecting better corporate earnings will spread to non-regular workers and small firms so that deflation will end.

“We will strive to achieve virtuous cycle of growth and distribution through work-style reform,” Suga told reporters.

However, wage gains could be offset by cuts in overtime pay as companies come under pressure from the government to curb Japan’s notoriously long overtime hours.

Rises in deductions for social security to service the rapidly aging population could also cut into wage gains, analysts say.

Japan’s unions tend not to be as aggressive in pressing their demands as those in the West because they attach greater importance to job security and maintain a sense of corporate loyalty.

Reporting by Tetsushi Kajimoto; Additional reporting by Minami Funakoshi, Naomi Tajitsu, Maki Shiraki, Izumi Nakagawa and Makiko Yamazaki; Editing by Sam Holmes and Kim Coghill

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