Japan's workers get a 5.28% pay rise, their biggest in 33 years

Japan’s largest trade union, Rengo on Friday announced that workers at country’s biggest firms have received a pay hike of 5.28 per cent in the fiscal year of 2024, a record-high in last three decades.

As per reports, wage hike may indicate Japan’s central bank to change its decade-long stimulus program and alter its monetary policy, fostering consumer spending.

“If major unions were able to get wage increases to about 5 per cent, it would be enough to satisfy the Bank of Japan (BOJ) that wages are rising and prompt them to shift monetary policy, Thierry Wizman, global interest rates and currencies strategist at Macquarie Group,” told CNBC.

The seven-million workers of the union, who have been battling stagnant wages amid inflation received a hike that is far higher than the 2023 increase of more than 3 per cent.

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Finance Minister Shunichi Suzuki had earlier announced that Japan’s economy was no longer in deflation, and a strong trend of wage hikes was taking place.

Why was this wage hike important for Japan?

The wage hike is likely to be a significant factor in the Bank of Japan’s considerations regarding changing the prevalent interest rates in the country. Recently, the market has been rife with speculations that the country’s central bank may soon end its decades-long negative interest rate policy next week, instead of pushing the decision till April.

Japan which narrowly escaped a recession in the fourth quarter last year, is anticipated to get a stimulus in the economic growth and household spending as the pay raise will drive domestic demand and consumption.

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The seven million workers of the union, who have been battling stagnant wages received a hike that is far higher than the 2023 increase of more than 3 per cent.

The Fumio Kishida-led government expects the benefits of raised wages to trickle down to the small and medium-sized businesses as well, which make up 70 per cent of Japan’s workforce and encompass 99.7 per cent of all enterprises.
but many lack the pricing power to pass higher costs on to their customers.

Which big firms have announced pay hikes so far?

As per a CNBC report mentioning Goldman Sachs tally of wage negotiations, Japan’s two largest steel companies Nippon Steel and Kobe Steelagreed, have exceeded the union’s expected wage hikes and announced raises of 14.2 per cent and 12.8 per cent respectively.

The world’s largest carmaker, Toyota recently agreed to the biggest annual pay increase for workers in 25 years and announced a monthly pay hike of as much as 28,440 yen ($191) and is paying record bonuses.

Electronic giants Panasonic and Hitachi have announced that they have met the pay raise demands of the workers’ union.