This year is pivotal for the Japanese economy to move away from decades of deflationary thinking toward sustained real wage growth, according to the head of the country’s largest labor union.
(Bloomberg) — This year is pivotal for the Japanese economy to move away from decades of deflationary thinking toward sustained real wage growth, according to the head of the country’s largest labor union.
Tomoko Yoshino, the first female leader of the Japanese Trade Union Confederation, commonly known as Rengo, stressed the importance of moving toward continued wage growth in the face of rapid inflation and economic stagnation.
While that’s a view largely shared by the Bank of Japan as it meets to decide on policy this week, Yoshino said the central bank needs to re-evaluate how much its policies have helped boost pay.
“We’ve had 30 years of companies cutting costs and holding back from investing,” Yoshino said in an interview with Bloomberg on Monday. “This year is a turning point.”
The union leader’s comments come as Japan faces the fastest pace of inflation in four decades, and investors scrutinize the direction of the country’s spring wage negotiations for its policy implications. Should workers succeed in securing pay that outpaces inflation, the BOJ may consider pivoting on policy if the gains look sustainable.
The central bank’s two-day meeting started Tuesday amid speculation it may unveil further policy tweaks following December’s surprise move. The base-case scenario for almost all economists is for no change this time around.
Yoshino’s union federation has been calling for a total pay increase of about 5% in the upcoming wage negotiations, the largest hike demand in 28 years.
“We need to recognize the value of workers, the value of goods,” the union leader said.
Yoshino refrained from commenting on whether she expects those 5% demands to be met. But she said she is hoping for a positive result from the talks, especially from global manufacturers that have done well with help from the weak yen. The impact of the pandemic is still lingering in other industries, she said.
Larger Japanese companies are increasingly signaling their intention to raise pay.
Uniqlo-operator Fast Retailing Co. announced last week that it plans to increase annual salaries for full-time employees in Japan by as much as 40%, aiming to catch up to global standards.
“Labor shortages are becoming a serious issue, so that news has probably given competitors a jolt,” said Yoshino.
Even if some industries have difficulty raising salaries this year, it’s still effective for them to discuss improving overall working conditions such as shorter hours, Yoshino said.
Prime Minister Fumio Kishida has urged firms to make sure wages out pace inflation, and has put together a stimulus package that includes support for smaller firms to raise pay.
The government needs to do more to make sure smaller firms can actually pass on costs to customers, and wage hikes are the only way to really get out of the deflationary mindset, Yoshino said. Companies need to draw more on their cash holdings to raise pay and focus less on shareholder dividends, she indicated.
In a new year speech Kishida admitted that despite rising corporate profits over the past few decades, pay hasn’t improved in Japan via an envisioned trickle-down effect. Yoshino argued that Japan’s recovery depends on how much smaller firms can pass on costs and boost wages to encourage consumption.
The upcoming wage negotiations have come under close market scrutiny, as the outcome will likely offer hints for the BOJ’s policy direction.
Governor Haruhiko Kuroda has repeatedly insisted that the BOJ will continue with monetary easing until the country stably achieves its inflation target, with accompanying wage growth.
Kuroda has indicated that wages need to rise steadily by about 3% to keep inflation above the bank’s 2% target on a sustainable basis.
Yoshino said the BOJ needed to review the effectiveness of its monetary policy, given that wages have remained stagnant since the bank started easing in 2013.
“A large amount of money has been supplied to the market, but it has not flowed to workers and households,” said Yoshino. Getting that flow going “should not be the sole responsibility of corporations,” she said.
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