Japanese Prime Minister Shinzo Abe urged companies to increase wages faster than gains in the cost of living to break the legacy of 15 years of deflation and praised Toyota Motor Corp and Hitachi Ltd for pledging to help.
“What we want is for wages to rise more than prices,” Abe said in an interview in the prime minister’s official residence in Tokyo. “We want to enter a virtuous cycle as quickly as possible,” where economic growth propels corporate profits, employers raise compensation and workers spend more.
The Abe administration’s reflation efforts have succeeded in stoking exporter profits with a cheaper yen that has sent the TOPIX Index of stocks heading for the best year since 1999, with a 46 percent surge so far this year. With consumer prices now rising at an annual pace of about 1 percent, higher wages will be needed to avoid hurting households that also face a 3 percentage point bump in sales taxes in April.
“For us to escape deflation it is extremely important that wages rise,” after they slumped more than prices declined in the past 15 years, Abe, 59, said in the interview on Wednesday last week. “Some companies are already responding. For example, executives at Toyota and Hitachi have promised a raise.”
Abe pledged to forge ahead with structural reforms designed to open business opportunities in industries from healthcare to agriculture. He said his Cabinet will adopt a program laying out deregulation priorities in the new year, with a minister placed in charge of the effort.
The prime minister has called four meetings since September with union and business leaders to persuade them to build a consensus on the need for higher wages. Officials are trying to convince Japan Inc to deploy some of its near-record holdings of cash. Domestic non-financial private companies held ￡220 trillion (US$2.1 trillion) in cash and bank deposits at the end of June, almost the size of Brazil’s annual GDP, according to data compiled by the Bank of Japan.
“We are aware of the role Toyota and the manufacturing industry as a whole are expected to play in revitalizing the economy,” Shino Yamada, a spokeswoman for the Toyota City-based company that is the world’s largest automaker, said yesterday. “Based on these expectations, the workforce and management will discuss this issue based on a request from the labor union.”
Toyota, Japan’s largest manufacturer, last month predicted net income would rise 74 percent to ￥1.67 trillion (US$16 billion) in the year through March next year, aided by a weaker yen.
Hitachi, a Tokyo-based maker of electronic equipment and machinery, predicts operating profit to jump 19 percent to a record ￥500 billion in the year through March next year.
“If it looks like we’re going to achieve a record profit as we forecast, then raising wages is one option,” and talks will probably start around February, Hitachi spokesman Yoji Maruo said.
Unions have not put in a pay-raise request yet, he added.
Japan’s jobless rate held at 4 percent in October, and the number of jobs on offer for every 100 people seeking work rose to 98, the highest level since 2007 — a sign of tightening in the job market that could put upward pressure on wages. Even so, regular wages excluding overtime and bonuses fell 0.4 percent in October from a year ago, a 17th straight monthly decline, Japanese Mnister of Health, Labor and Welfare said on Tuesday last week.
“Japan is showing signs of escaping from its 15 years of deflation, although we are still part-way along in that process,” Abe said.
“We have been calling on employers to raise salaries from April,” he said.
He cited one sign of progress being an average ￥53,000 increase in winter bonuses, according to a Japanese Trade Union Confederation survey.
Japan’s economy is forecast to shrink an annualized 4.5 percent in the quarter starting in April, according to a median estimate of economists surveyed by Bloomberg News. GDP rose an annualized 1.1 percent from July to September, revised data showed yesterday, slowing from 3.6 percent the previous three months and 4.5 percent in the January-to-March period.
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