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Japan Inc set to lose momentum on wage growth this year: Reuters poll
February 21, 2016 / 10:33 PM / 2 years ago

Japan Inc set to lose momentum on wage growth this year: Reuters poll

TOKYO (Reuters) - The vast majority of Japanese firms are planning only modest pay raises this year, a Reuters poll showed, as murky growth prospects and turbulent markets push them to resist Prime Minister Shinzo Abe’s calls for robust hikes.

A worker cycles near a factory at the Keihin industrial zone in Kawasaki, Japan February 17, 2016. REUTERS/Toru Hanai

The Reuters Corporate Survey found 84 percent of firms expect increases of less than 2 percent as they conduct annual wage talks - a strong indication of waning momentum after blue-chip companies offered raises above that level for the past two years.

The survey, conducted Feb 1-16, also found that most companies expect cumulative wage increases since a 2014 national sales tax hike to be weak, underscoring little relief for consumers who have seen their purchasing power decline.

Abe has repeatedly urged Japan Inc to lift worker compensation, particularly base pay, as a key part of his strategy to drag the country out of decades of deflation, but the survey results show many companies are hesitant to commit to further rises in fixed costs.

“Unless we can become optimistic about our earnings outlook, it will be tough to lift wages,” responded a manager at a manufacturer.

The survey, conducted for Reuters by Nikkei Research, polled 513 big and medium-sized firms, with managers responding on condition of anonymity. Around 230-260 firms answered questions on wages.

With a global stock market rout and sharp gains in the yen coming on the heels of a quarter of economic contraction, firms have a ready excuse to forgo wage hikes and early signs from labor unions have also shown they are reducing demands.

Toyota Motor Corp’s (7203.T) labor union is seeking a 3,000 yen ($27) increase in monthly base pay, half of what was sought last year. That is despite the automaker expecting record profits in current financial year to March.

PURCHASING POWER PAIN

In Japan, annual wage talks center on levels for base pay as well as raises linked to a worker’s length of service. Until a few years ago, many big-name companies had simply frozen base pay levels as they are seen as hard to undo, preferring to reward employees with bonuses.

Around 30 percent of companies in the survey said they did not plan to raise base pay this year, compared to just 9 percent that plan to, while the rest remain undecided.

Wages in Japan fell 0.9 percent last year in real terms, dropping for a fourth straight year. Much of the decline has been blamed on the April 2014 national sales hike to 8 percent from 5 percent, as well as rises in the cost of food and daily necessities due to a weaker yen under Abenomics.

Including plans for this year, most companies expect cumulative wage raises since the tax hike of less than 3 percent. Just over a third of firms expect wages to have climbed between 1 and 2 percent since the hike, another 22 percent expect wages to have climbed less than 1 percent while 12 percent see no wage increases at all.

“The latest results suggest cumulative wage hikes still won’t be strong enough to help households regain purchasing power,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute, who reviewed the survey results.

“The slump in private consumption can be explained in large part by declining purchasing power. A weak yen and rising food prices in recent years have further aggravated consumer spending.”

($1 = 113.00 yen)

Reporting by Tetsushi Kajimoto and Izumi Nakagawa; Editing by Edwina Gibbs

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