According to the largest trade union in Japan, companies this year delivered the largest wage increases in three decades. Economists predict that this move would help boost sluggish consumer demand.

A Rengo study revealed that wage increases that were first reported by unions at the country’s largest firms in March were now being extended to employees at small and medium-sized businesses (SMEs), or those with unions of 300 or fewer members.

The most significant pay increase since 3.9% in 1993 was found in the final poll of 5,272 unions associated with Rengo, which revealed an average salary increase of 3.58%, or 10,560 yen ($73.04) per month. The fastest rate in thirty years was also experienced by SMEs, who increased pay by 3.23%.

One of the important factors the Bank of Japan (BOJ) is carefully monitoring as it decides whether and when to discontinue its ultra-loose monetary stimulus is wage growth.

BOJ Governor Kazuo Ueda has emphasised the necessity for accommodative policy until wages rise enough to sustainably keep price growth at or below the 2% objective.

“Rising prices and a chronic labour crunch are driving up wages, which will continue to rise next year. What’s important from now on is to bring real wages to positive territory,” said Hisashi Yamada, economist and Hosei University professor.

“Rising wages will help stabilise inflation at 2% towards next year, keeping the central bank under pressure to scrap yield curve control sooner or later.”

Given that the cost of living is rising due to a weak yen and greater import prices, the salary increases should help Prime Minister Fumio Kishida gain some political support.

Since the asset bubble broke in the 1990s, Japanese salaries have essentially remained stagnant and are currently significantly lower than the OECD member average.

According to a poll by Keidanren, the largest business lobby in Japan, big enterprises’ summer bonus payouts are predicted to increase 3.9%, up for a second year in a row, albeit gains are likely to be uneven.

(Adapted from USNews.com)

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