Majority of Japan firms agrees to pay raise call by their prime minister

Amid rising inflation and cost of living, more than half of companies in Japan are planning to raise wages this year, shows a monthly poll, which meets a key request from Prime Minister Fumio Kishida to help workers cope with surging consumer prices.

It means Japan is dealing the current economic crisis differently when compared with the rest of the world, barring Turkey: government’s low interest rate policy and the corporate sector going for pay raise.  

In Turkey too, the interest rate are lower but the moves like pay raise and allowing early retirement have come from the Erdogan government.

Kishida has repeatedly urged companies to make strong efforts to lift employee pay, which has failed to keep up with the fastest inflation in 40 years. That push got a boost last week when Uniqlo operator Fast Retailing said it would raise wages as much as 40 percent.

Ahead of spring shuntō labor negotiations, managers at 24 percent of the companies polled said they planned on across-the-board bumps in base salary along with regularly scheduled wage increases. Another 29 percent said they would carry out regular pay increases only, while 38 percent were undecided.

“Prime Minister Kishida has been saying raise wages, raise wages, but the decision to hike pay isn’t done on the words of a prime minister or president,” said Masayuki Kubota, chief strategist at Rakuten Securities. “Rather it’s because a company needs better human resources to achieve its growth potential.”

“If the company isn’t competitive, raising wages translates just to higher costs that will only worsen its situation,” he added.

A total of 34 percent of firms said they planned wage increases of at least 3 percent, a jump from 10 percent in a similar survey in October.

The survey showed companies are less eager to bear the brunt of another Kishida plan: unprecedented military spending to counter growing threats from China and North Korea. To help pay for it, the plan calls for corporate tax surcharges of 4 percent to 4.5 percent that would take effect from fiscal 2024 or later.

Among 495 firms polled, 54 percent supported the defense spending plan, but just 29 percent backed the increase in corporate tax rates.

“Without any explanation of how the increase in defense spending will be used, the policy to assign most of the burden on corporate taxes is totally unacceptable,” said a manager at an industrial ceramics company, speaking on condition of anonymity. “This could put a damper on wage increases and capital investment.”

Asked what expenses would be curtailed if corporate levies go up, the top answer was capital spending, at 42 percent, followed by dividends and wages.

In the October survey, 81 percent of companies said they approved of a substantial increase in defense spending, but just 20 percent said corporate taxes should be lifted to pay for it.

On the overall business environment, corporate managers turned slightly more pessimistic, with 81 percent saying conditions would be “not so good” to “bad” in the next three months, compared with 77 percent in the December survey.

“The weak yen along with higher raw material prices continue to squeeze profit margins,” said a manager at a manufacturing company. “Although our company raised prices last spring and autumn, it wasn’t enough to absorb the materials costs, so we plan to raise prices again this spring.”

The survey canvassed 495 big, nonfinancial Japanese firms on condition of anonymity, allowing them to speak more freely.

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