World Economy

Japan Small Wage Rise Crucial for Abenomics

Japan Small Wage Rise Crucial for AbenomicsJapan Small Wage Rise Crucial for Abenomics

Japanese blue-chip firms on Wednesday announced wage hikes far below last year’s increases, a blow to “Abenomics” stimulus policy at a time fears of a deepening global slowdown and jittery markets are denting business sentiment.

Bellwether Toyota Motor Corp and some other leading manufacturers agreed to raise base pay for a third year in a row, under public pressure from Prime Minister Shinzo Abe. But analysts found the increments disappointing, Reuters reported.

“This won’t boost the economy,” said Hisashi Yamada, chief economist at Japan Research Institute.

Given big firms’ results, the extent of wage hikes will be limited at small firms that employ seven out of 10 workers, he added, underlining the challenge to Abenomics’ trickle-down.

Economy Minister Nobuteru Ishihara sought to put a positive spin on Wednesday’s numbers. “The trend for wage hikes from the past two years is continuing on the whole,” he said.

“This is still the third round (year of wage hikes). We must see fourth and fifth rounds to eradicate deflationary mindset.”

Unions had tempered their demands, reflecting the tougher environment. Still, companies’ response at the key annual “shunto” wage negotiations was well short of the demands.

Toyota agreed to a monthly base wage rise of 1,500 yen ($13.23), half of the union’s demand and below the 4,000 yen gain given last year. Other automakers also offered smaller hikes.

Major electric machinery makers such as Hitachi, Mitsubishi Electric and Panasonic Corp halved this year’s base pay rise to 1,500 yen.

With the economy close to another recession due to weak consumer spending, Abe has been counting on wage hikes to drive a virtuous growth cycle led by higher incomes and increased consumer spending and business investment.

  A Hard Struggle

The monetary “arrow” of Abenomics was meant to raise inflation expectations to 2% and provide a mechanism to coordinate wage and price inflation, two International Monetary Fund officials wrote on Sunday.

“This has proven to be a hard struggle because companies and workers alike seem to look backward rather than forward in setting their expectations,” said an article co-authored by IMF Japan mission chief Luc Everaert.

“It’s about time for overseas people to pile pressure on those Japanese companies that won’t raise wages rightly,” one senior official told Reuters.

In 2014, leading companies consented to an average wage hike of 2.19% and last year brought a 2.38% raise—a 17-year high. Analysts expect pay rises to slow to just above 2% this year.