Japan’s Labour Talks Begin

By Makiko Yamazaki

TOKYO (Reuters) – Japan’s largest business lobby, Keidanren, along with trade unions, commenced annual labor talks on Wednesday, which are anticipated to result in another year of substantial wage increases. However, policymakers are primarily focused on the spread of this momentum to smaller companies.

With major firms already committing to significant pay raises for this year, the likelihood of large wage hikes bolsters the argument for the Bank of Japan to consider increasing interest rates later this week.

According to a poll conducted by the Japan Centre for Economic Research, encompassing 35 economists from December 23 to January 8, Japan’s large firms are expected to propose an average wage increase of 4.74% for this year. While this estimate is lower than last year’s 5.33% average, it is deemed solid for a country where wages have remained stagnant for decades. In 2022, rising inflation and labor shortages pressured companies to boost employee compensation.

In 2024, Japanese companies agreed to an average wage hike of 5.1%, marking the largest increase in three decades, as reported by Rengo, Japan’s largest union. Rengo is advocating for wage increases of at least 5% in 2025, aiming for a target of at least 6% for smaller firms to reduce the wage gap with employees at large firms.

“We want the strong momentum from the last two years to take hold this year,” stated Keidanren chief Masakazu Tokura during a session with executives from the business lobby and Rengo. He stressed the importance of ensuring that workers at small and medium-sized firms, who make up about 70% of total employment, and non-regular workers (40% of total employment) also receive higher wages.

Although Japan’s small firms are currently allocating a larger proportion of their profits to wages than larger companies, they may find it challenging to sustain pay increases. “Large firms will continue to lead the wage growth momentum this year, but smaller firms struggle to transfer rising labor costs into prices, thereby squeezing their profits,” remarked Satoshi Fujii of Teikoku Databank.