Japan Inc tightens wage purse strings as coronavirus clouds gather By Reuters

© Reuters. Japan Inc tightens wage purse strings as coronavirus clouds gather

By Tetsushi Kajimoto and Naomi Tajitsu

TOKYO (Reuters) – Against the backdrop of the coronavirus epidemic and a looming global economic slowdown, major Japanese firms are tightening their belts in influential annual wage deals that were hammered out with unions on Wednesday.

Setting the tone, bellwether Toyota Motor Corp (T:) said on Wednesday it had agreed to give workers an average monthly pay raise that’s 20% lower than last year’s hike. What’s more, base pay will not rise for the first time in seven years.

Major steelmakers followed suit and shelved base pay hikes, threatening Prime Minister Shinzo Abe’s lofty goal of generating a self-sustaining growth cycle – a key plank of his ‘Abenomics’ policies to stimulate the world’s third-biggest economy.

Over the past six years, major firms raised wages more than 2% each spring as Abe pressured businesses to boost pay to put an end to deflation and stagnation that has dogged Japan for two decades.

BOJ Governor Haruhiko Kuroda has said he would closely watch the outcome of the wage talks for a clue to gauge the price trend, as the central bank may expand monetary stimulus next week to counter the fallout from the spread of the coronavirus.

“Substantial wage increases cannot be expected in 2020 as base pay won’t rise much,” said Yoshiyuki Suimon, senior economist at Nomura Securities. He was referring to base pay hikes, which determine regular pay that accounts for most of monthly salary.


Rather then lifting base pay, Toyota agreed to an average rise of 8,600 yen ($82.31) per month for all employees, a portion of which will be invested in steps to enable workers to advance their careers such as work experience in other sections and regions.

The average increase in the fiscal year starting April compared with last year’s 10,700 yen raise.

“Any negative impact to our current situation could have a significant impact on our workforce,” Masanori Kuwata, Toyota’s deputy chief human resources officer, told reporters after reaching the agreement with its union.

“Because of this, we opted to forgo raising base salaries this year,” Kuwata said, adding that Toyota’s base salaries are already among the highest in Japan.

Japanese major steelmakers – Nippon Steel (T:), JFE Steel, a unit of JFE Holdings (T:) and Kobe Steel Ltd (T:) – said they agreed with unions to freeze base pay raises for two years from fiscal 2020, the business daily said. It marks the first time these firms have not hiked wages.

“Companies are turning cautious about base pay hikes as the new virus outbreak will exacerbate declines in profits,” said Koya Miyamae, a senior economist at SMBC Nikko Securities.

“As the virus outbreak deepens, labour unions are also losing momentum towards base pay hikes, and both manufacturers and non-manufacturers become half-hearted about wage hikes.”


With the economy already teetering on the brink of a recession, Japanese firms have become wary about wage hikes that commit them to higher fixed costs.

Companies have begun to take a varied approach, with more withholding blanket pay hikes and shifting to merit-based wages rather than seniority-oriented pay in an effort to attract young and skilled workers, while restraining wages for the middle-aged and older employees.

Wage strategies have also been affecting by diversification in Japan’s work structure.

About 40% of workers are now lower-paid part-time staff and contract workers – double the proportion seen in 1990, just before the Japan’s asset bubble burst, ushering in deflation.

The growing army of low-paid workers has led unions to prioritise addressing the income gap between permanent employees and others, rather than broad uniform pay raises.

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