Japanese companies have markedly slowed the pace of wage growth in one of the worst blows to hit the Abenomics stimulus since it was launched in 2012.
As results of the annual “spring offensive” on wages poured in from across the manufacturing sector, many companies offered pay rises half the size of last year, and far below the pace needed to drive inflation to 2 per cent.
The results are a double blow to Shinzo Abe, prime minister, and the Bank of Japan. Lower wage rises not only mean less cash to fuel consumption, they cast doubt on the credibility of the BoJ.
The numbers suggest a prolonged delay — at best — before Mr Abe’s programme reaches its goals, and raise the chances of additional monetary and fiscal stimulus to get the economy going again.
“As expected, the figures have come in weak,” said Harumi Taguchi, economist at IHS in Tokyo. “Given the effect on consumption, it’s not such a good environment for raising the sales tax on schedule next year.”
In the most symbolic result of the day, Toyota granted a basic wage rise of Y1,500 ($ 13) per month, compared with the Y3,000 its union asked for and the Y4,000 it gave last year.
Akio Toyoda, the carmaker’s president, said “the tide had changed” in the business environment. “There has been no year as agonising as this one,” he said.
The world’s largest car group is coming under pressure from the cost of developing new technologies such as artificial intelligence, even though it remains on track for a third straight year of record profit. Its basic wage rise equates to an average increase of 0.42 per cent.
In the first two years of Abenomics, companies responded to government pressure for higher wages — with Toyota taking the lead. But this year executives were recalcitrant as they grappled with China’s slowdown and the stronger yen.
Companies are particularly reluctant to raise basic pay since it affects every point in Japan’s strict seniority-based wage system, permanently increasing the overall wage bill. In the past three years across-the-board increases at Hitachi, for example, have raised fixed costs by Y14bn ($ 123m).
“Economic conditions deteriorated rapidly and we expect these tough conditions to continue,” said Hidenobu Nakahata, Hitachi’s chief human resources officer. “With our earnings already hit hard, the wage negotiations were very difficult.”
That pattern was mirrored across the industrial sector, with Honda granting a rise of Y1,100 per month, and Mitsubishi Heavy a raise of Y1,500. Nissan was an outlier, giving its union the full Y3,000 it requested.
A relatively small share of the total economy participates in the “spring offensive” — primarily unionised workers at large companies — but it sets a benchmark that ripples up their supply chain.
The weak wage round came as the International Monetary Fund urged the Abe government to make pay rises a “fourth arrow” of Abenomics, with tax incentives for increases, and penalties for companies that keep wages static.
“The monetary arrow was meant to raise inflation expectations to 2 per cent, and thus provide a mechanism to co-ordinate wage and price inflation,” said Luc Everaert and Giovanni Ganelli of the IMF.
“However, this has proven to be a hard struggle because companies and workers alike seem to look backward rather than forward in setting their expectations,” they added. “A fourth arrow needs to be loaded.”
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