(Bloomberg) — Whether Japan can sustain its wage growth momentum is likely to be a key factor affecting the longevity of Prime Minister Shigeru Ishiba’s administration and the timing of the central bank’s next interest rate hike.
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The next round of annual wage negotiations will play an important role in shaping the trajectory of the trend while offering a measure of its ongoing strength.
The country’s largest labor union federation is reportedly seeking 5% or more in wage hikes again next year, an early indication that upward pressure on pay will remain at least as strong as this year. Negotiated wage gains tracked by the Rengo federation hit a 33-year record of 5.1% in 2024.
Still, the scale of those pay deals hasn’t spread to all parts of the country’s workforce. Average cash earnings through August this year have averaged 2.3%, leaving wage gains trailing behind even stronger growth in prices.
The pain of inflation for households contributed to the dismal support levels that prompted former Prime Minister Fumio Kishida to step down as leader of the ruling party. So for Ishiba, who faces a general election later this month, addressing wage growth and inflation is crucial for shoring up his leadership.
Wages are also being closely monitored by the Bank of Japan, as it seeks further evidence of a virtuous cycle of rising wages and prices before proceeding with more rate increases.
Here’s a timeline of key events related to wage negotiations over the next year:
Oct. 18: Rengo Wage Target
Rengo typically outlines its strategy for the annual spring wage negotiation in mid-October. This year it will release its basic plan on Oct. 18, including a broad goal for salary increases. Rengo is set to aim for “at least 5% in total pay increase,” according to public broadcaster NHK, the same target as last year. The overall target will include a bump in base pay of at least 3%, NHK said.
Around November: Ishiba Package
Ishiba instructed ministries to compile an economic package earlier this month, including steps to support wage growth, and added he expects a larger extra budget to fund it than last year. Kishida also unveiled measures to support pay growth as part of a package in November last year worth more than ¥17 trillion ($114 billion). The measures included support for smaller firms and elderly care workers, along with an extension of utility subsidies and tax rebates. Still, the public response was tepid, impacting Kishida’s approval ratings. That’s a fate that may await Ishiba if he unveils little in the way of new steps.
October-January: Big Firms’ Wage Plans
Major corporations will begin announcing their plans for pay as early as October. These announcements will offer an early indication of whether pay gains are likely to exceed this year’s. Last year, Meiji Yasuda Life Insurance and Dai-ichi Life Insurance announced a 7% gain target by the end of November. Financial institutions and retailers such as Nomura Holdings Inc. and Aeon Co. followed in December and January.
Early December: Rengo Strategy
Last year Rengo released a 30-page statement on Dec. 1, formalizing its pay increase goal and negotiation strategy. The document also addressed a variety of labor issues such as age-based pay discrepancies and gender equality in the workplace. In the months that follow, the prime minister typically meets with union and business leaders to amplify calls for wage increases.
February: Big Firms’ Early Wage Deals
Some large firms reach agreements with employees ahead of the March pay deal peak, providing insight into the overall trend. Last year, by the end of February restaurant operator Skylark Holdings Co. unveiled they would offer a more than 6% wage increase. Automakers such as Honda Motor Co. and Mazda Motor Corp. also announced deals toward the end of February.
Early March: Average Pay Demands
In early March, Rengo will likely compile the pay requests of its member unions. On March 7, the federation reported that 3,102 unions had demanded an average total pay increase of 5.85%, marking the first time in 30 years that the request surpassed 5%.
Mid March: Pay Deals
About two weeks later, Rengo announces its initial tally of results. On March 15 this year, the federation revealed that 771 unions had achieved a record 5.28% wage increase, an outcome that influenced the BOJ’s decision to raise interest rates for the first time in 17 years just a few days later. Rengo updates these results through the summer, typically showing a tapering off in wage growth as more firms report their outcomes.
April: Smaller firms
April figures are an important indication of the broader wage growth trend as results for smaller firms and part-time workers start to get factored in. This year, as many as 2,000 companies with fewer than 300 workers reported their pay deals by around April 18, up from 358 in the first tally. About two-thirds of corporate employees work at firms with fewer than 1,000 staff, while almost 37% of all workers are employed on a contract, part-time or temporary basis.
July: Final Tally
Rengo usually releases its final tally in July. The union federation said on July 3 that its members secured pay increases of 5.10%. Many of these gains began appearing in paychecks starting in May. By mid-August, over 80% of the increases were expected to be reflected in payroll data, according to a BOJ report.
August: Minimum Wage
Separately, the government encourages prefectures to consider raising the minimum wage around mid-August. Ishiba declared support for his predecessor’s initiative of raising the nation’s minimum wage to ¥1,500 ($10), bringing the target forward to within the 2020s from the mid-2030s. That implies a pace of annual gains that appears unlikely, but gains in the minimum wage could be another potential driver for higher overall pay.
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