Japan Finally Gets a Raise

livemint.com:

Japanese workers are about to receive much bigger paychecks. That could make the Bank of Japan’s decision on whether to ditch its ultralow interest rate policy—which could come as soon as next week—easier. Some of Japan’s biggest companies have agreed to give their employees their largest pay rise in decades, as workers demand higher wages to combat inflation.

Every spring, labor unions in Japan negotiate with companies on wages in a process called the Shunto. The average pay rise last year from the Shunto was 3.6%, already much higher than previous years. This year, the unions are asking for a pay rise of more than 5% and they may well get it, according to figures from the Japanese Trade Union Confederation, also known as Rengo.

Many of the largest companies like Toyota and Nissan have accepted what their unions asked for and some, such as Nippon Steel, have even gone further. An aging population has contributed to labor shortages while inflation—2.6% in 2023, high by Japan’s standard—has pushed employees to ask for more. The first round results of the Shunto will come out this Friday and Morgan Stanley estimates average wage increases could be 5.2%.

The bank thinks the final round result—which will be announced in the summer—will be around 4.8%. That final figure is usually lower because it includes employees covered by some smaller unions. The pay raise also includes regular hikes depending on seniority.

While the Shunto is for unionized workers, the results are a good indication of the overall trend for wages. Western countries might worry that a wage-price spiral could result in dangerously entrenched and elevated inflation. But for Japan, a country that has been mired in deflation for much of the past several