Toyota to roll out biggest wage hike in 25 years for Japanese workers

On Wednesday, Toyota Motor decided to provide its plant workers the largest pay boost in 25 years, which raised hopes that the massive pay increases would allow the central bank to take a significant step in policy next week.

During the annual wage discussions that conclude on Wednesday, a number of major companies in Japan Inc., including Toyota, Panasonic, Nippon Steel, and Nissan, committed to completely meet union demands for pay hikes.

The negotiations, which have long been a defining characteristic of the typically cooperative relationship between labour and management in Japan, are being closely watched this year because it looks like the pay increases will help pave the way for the central bank to end its negative interest rate policy, which has been in place for years, as early as next week.

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The largest automobile manufacturer in the world and a frequent predictor of the yearly negotiations, Toyota, said that it has acceded to the requests for record-breaking incentive payments and wage hikes of up to 28,440 yen ($193) each month. In keeping with previous practice, the corporation did not disclose the compensation increase as a percentage.

“We’re seeing strong momentum for wage hikes,” Japan’s top government spokesperson and chief cabinet secretary, Yoshimasa Hayashi, told reporters. “It’s important that the strong wage hike momentum will spread to small and mid-sized firms.”

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Economists see substantial wage increases as a prerequisite for the Bank of Japan (BOJ) to declare that its long-held goals of sustainable wage growth and stable prices are in sight and usher in an end to negative rates in place since 2016.

The bank, which has stuck with massive stimulus and ultra-low rates for years longer than other developed countries in an attempt to jumpstart a moribund economy, is set to hold its next policy setting meeting on March 18-19.

Workers at major firms have asked for annual increases of 5.85%, according to Japan’s biggest trade union grouping, Rengo, which if agreed upon would breach the 5% level for the first time in 31 years.

Hisashi Yamada, a senior economist at Japan Research Institute and an expert on labour issues, estimated overall increases of 4.2% to 4.3% based on the “quite strong” responses so far, and possibly more than 5% for top firms.

He attributed the rises to the trend of higher wages globally, domestic labour shortages and inflation.

“Still, the sustainability of such strong pay raise and whether the trend of wage hikes will spread to small and medium-sized companies going forward is uncertain,” Yamada said.

Trickle-down effect

In a further positive sign, the Japanese Association of Metal, Machinery and Manufacturing Workers (JAM), a union representing workers at small manufacturers, said the pay rises they had secured exceeded expectations and there was a change in the mindset of workers.

“The Japanese are finally starting to realise that the gap between wages inside and outside the country is widening significantly,” JAM Chairman Katahiro Yasukochi told reporters.

Smaller firms employ seven out of 10 workers in Japan but have struggled to offer sizeable pay hikes because they have less leverage to pass on costs to clients.

Top companies such as Toyota are under pressure from the government to facilitate wage hikes downstream so that real wages, which are adjusted for inflation, can reverse a 22-month streak of consecutive falls.

“We do hope that our results could spread to all of our suppliers,” Toyota’s chief human resources officer, Takanori Azuma, told reporters.

“We need to continue asking tier-one suppliers to pass that down to tier-two suppliers and so on,” he said, while adding that ultimately, wage decisions were up to each individual company.