Photo/Illutration Tomoko Yoshino, president of Rengo (Japanese Trade Union Confederation), in Tokyo in March 2023 during annual spring wage negotiations (Asahi Shimbun file photo)

Japan's biggest companies agreed to hike wages by 5.28% for 2024, the highest in 33 years, the country's largest union group said on Friday, reinforcing views that the county's central bank will soon shift away from a decade-long stimulus program.

The stronger-than-expected outcome comes as the Bank of Japan looks close to ending eight years of negative interest rate policy. BOJ officials have stressed the timing of a pivot would depend on the outcome of this year's annual wage negotiations.

Policymakers hope that hefty pay rises will boost household spending and produce more durable growth in the broader economy, which narrowly avoided slipping into recession late last year.

Workers at major firms had asked for annual increases of 5.85%, topping the 5% mark for the first time in 30 years, according to trade union group Rengo.

The union group, which represents about 7 million workers, many at large companies, had set its eyes on more than 3% of base pay hikes -- a key barometer of wage strength as they determine wage curves that provide the basis of bonuses, severance and pensions.

Analysts had expected a rise of more than 4%, after last year's 3.6%, itself a three-decade high.

Rengo chief Tomoko Yoshino told a press conference that rising income inequality, inflation and a labor crunch were among the factors behind the big increase, adding part-time workers would see pay hikes of 6% this fiscal year.

Yoshino said the country was at a critical stage in a shift towards economic revival.

The government is counting on such wage hikes to trickle down to smaller and medium-sized firms, which account for a whopping 99.7% of all enterprises and about 70% of the country's workforce, but many lack the pricing power to pass higher costs on to their customers.

Wage talks for most smaller companies are expected to concluded by the end of March, and any increments are likely to come in lower than those agreed by major firms.

Even though Japanese companies have been raising pay, the increases have largely failed to keep up with inflation. Real wages, which are adjusted for inflation, have now fallen for 22 straight months.

LABOR SHORTAGES

At the labor talks, one strong showing emerged after another, led by Toyota Motor, the bellwether of annual talks, which unveiled its biggest pay increase in 25 years.

The strong wage hikes are likely to boost expectations the central bank will end negative interest rates as early as its next policy setting meeting on March 18-19.

Japanese businesses are facing a chronic labor shortage due to an ageing and dwindling pool of workers.

Prime Minister Fumio Kishida is pushing companies to raise wages to help Japan shake off years of deflation and put an end to meagre wage growth that has kept well behind the average for the OECD grouping of rich countries.

The annual pay negotiations - called “shunto” or “spring labor offensive” - are one of the defining features of Japanese business, where relations between labor and management tend to be more collaborative than in some other countries.

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