Cautious Japan firms offer smaller wage hikes as economy wobbles

Tokyo: Big Japanese firms offered smaller pay increases at annual wage talks on Wednesday as the economy sputters, tempering hopes that domestic consumption will offset external risks to growth.

Major firms are set to raise wages for a sixth straight year as Prime Minister Shinzo Abe kept up the pressure on businesses to boost pay in an effort to beat deflation that has dogged Japan for nearly two decades.

But as economic growth slows, firms have grown wary about offering big pay increases because that commits them to higher fixed costs at a time of uncertainty as company profits are levelling off.

Results of the “shunto” talks between management and unions - announced by blue chips in sectors like cars and electronics - set the tone for wage hikes across the nation, which have implications for consumer spending and inflation.

“I worry the momentum towards wage hikes may weaken as underlying inflation remains weak and there is a strong sense of uncertainty,” said Hisashi Yamada, senior economist at Japan Research Institute.

“Uncertainty is high on the external outlook such as the US-China trade war and Europe’s unstable politics. On top of that, a national sales tax is scheduled to increase in October.”

A slowdown in the global economy, the Sino-US trade war and trepidation over the final shape of a deal to seal Britain’s exit from the European Union have sharply increased strains on businesses worldwide.

Faced with the heightened uncertainty about the growth outlook, cautious Japanese firms usually prefer to offer one-off bonuses and other benefits depending on annual profits.

They tend to Focus more on the annual total sum payment than fixed base salaries, which will determine retirement payment and pension benefits.

Bellwether Toyota Motor Corp, Japan’s largest automaker, offered on Wednesday a pay raise of 10,700 yen ($96.21) on average, down 1,000 yen from last year, domestic media reported, underscoring growing pressure on businesses.

Electronics giants such as Panasonic Corp, offered a base pay raise of 1,000 yen, down 500 yen from last year.

A survey by the Institute of Labour Administration, a think tank, predicted wage growth will slow to 2.15 per cent this year, pulling further away from the 17-year peak of 2.38 in 2015, despite hefty cash piles at Japanese corporations.

A Reuters Corporate Survey last month found a slim majority - 51 per cent of firms polled - saw wages rising around 1.5-2 per cent this year, versus last year’s 2.26 per cent average across all Japanese industries.

In the coming fiscal year from April 1, Abe’s government will start to implement work-style reform to curb Japan’s notoriously long work hours.

The reform also includes “equal pay for equal work” aimed at narrowing the pay gap between full-time employees and contract workers or part-timers, and raising the retirement age to cope with the ageing population.

The move has shifted Focus away from pay hikes with both unions and management, dashing policymakers’ hopes of stoking a virtuous cycle of a tight job market boosting wages to stimulate consumption and spur inflation to the BOJ’s 2 per cent target.

Japan’s unions tend not to be so aggressive in pressing their demands as those in the West because they attach greater importance to job security and retain a sense of company loyalty.

The dwindling union membership has deprived unionists of bargaining powers, with companies hiring more non-unionised part-timers and nonregular employees, who represent nearly 40 per cent of workers.

“At this year’s shunto, both companies and unions don’t seem to put greater emphasis on wage hikes than before,” said Kiichi Murashima, economist at Citigroup Global Markets Japan.

“Instead, they are considering a wider range of issues like pay disparity, labour productivity and work-life balance.”

Meanwhile, Japan’s Nikkei ended lower on Wednesday as weak machinery orders dragged down shares of machinery makers and exporters, and investors worried about Britain’s exit from the European Union took profits.

Financial stocks, which benefit from higher yields, also underperformed as US yields tumbled under pressure from weak inflation data, supporting expectations that the US Federal Reserve will hold interest rates steady this year. The Nikkei share average ended 1.0 per cent lower to 21,290.24 points, after surging 1.8 per cent the previous day.

Japanese machinery orders fell in January at the fastest pace in four months as the US-China tariff war hit global trade and dented demand from the country’s auto and telecommunications equipment sectors. Among chip equipment makers, Advantest Corporation shed 2.3 per cent, while Tokyo Electron lost 1.3 per cent. TDK Corporation fell 3.5 per cent and Hitachi Ltd dropped 2.9 per cent.

Reuters