Japan Inc. Slashes Wage Increases As Abe Fails To Boost Economy
Japan’s major companies are giving lower wage increases next fiscal year as Prime Minister Shinzo Abe’s efforts to boost the economy falter.
Toyota Motor Corp. agreed to increase monthly base salaries 1,500 yen ($13) in the year beginning April, according to a statement from the company Wednesday. That compares with a 4,000 yen hike this fiscal year.
Panasonic Corp. and Hitachi Ltd. have also both agreed to a 1,500 yen wage increase next fiscal year, according to separate statements from the companies Wednesday. That’s half their hike for this business year. Japanese companies are struggling with slowing profit growth, a weakening global outlook and a strengthening yen, which threatens to cut profits earned overseas.
“The biggest reason companies are offering smaller pay increases is because profits aren’t rising as much as last year,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo said by telephone Wednesday. “There are also concerns about the outlook for the economy, especially with uncertainty over China’s growth. On top of that we’re seeing hardly any inflation.”
Toyota’s resistance is the latest indication that the virtuous cycle sought under Abenomics — in which wage growth, higher consumption and price hikes combine to drive sustainable economic growth — may be stalling. Japan’s largest automaker predicts net income will increase 4.4 percent in the year ended this month, compared with 13.2 percent last fiscal year.
“The tide has turned,” Toyota President Akio Toyoda said after negotiations, Managing Officer Tatsuro Ueda told reporters Wednesday. “It started with production rate increases and competitiveness and is expanding to changes in the exchange rate and stronger than expected environmental regulation in emerging countries.”
Nissan Motor Co., Japan’s second-largest carmaker, reduced its wage hike to 3,000 yen for next fiscal year, the company said Wednesday, compared with 5,000 yen this year. Honda Motor Co. agreed with its union on 1,100 yen raises, compared with 3,400 yen for this fiscal year, according to a faxed statement from Japan’s third-largest carmaker.
“The virtuous economic cycle that Abe has sought isn’t working well,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center Co. in Tokyo. “With Japan’s economic outlook dimming, company management can’t be aggressive about wage hikes that increase fixed costs.”
Kirin Holdings Co., Japan’s second-largest brewer by market value, is one of the few companies bucking the trend, with its first wage increase in 15 years.
The beer maker agreed to increase wages by 2,000 yen, the first base pay increase since 2001, as the company achieved its goal of halting shrinking market share and booked higher profit than expected, Daigo Yamazaki, a spokesman for Kirin Holdings, said by phone Wednesday.
Japan’s steelmakers, which negotiate wage increases once every two years, are also increasing base salaries for next fiscal year.
Nippon Steel & Sumitomo Metal Corp., the nation’s largest, will increase wages 1,500 yen a month next fiscal year, compared with 1,000 yen this business year, the same as JFE Holdings Inc., the second-biggest, the companies said separately.
They are one of the few exceptions. Wage negotiations this year were “hardly aggressive,” Luc Everaert and Giovanni Ganelli, officials with the International Monetary Fund, wrote in a blog post Sunday.
“Companies and workers alike seem to look backward rather than forward in setting their expectations” for price inflation, Everaert and Ganelli wrote. “As a result, they fail to do their part to solve the coordination problem that would leave all better off.”
Toshiba Corp., grappling with an accounting scandal, will keep base salaries flat, as will Sharp Corp., which has agreed to a takeover by Foxconn Technology Group, the companies said in separate statements Wednesday.
Japan’s unions pared back wage demands early this year as the yen strengthened. Abe and his hand-picked Bank of Japan Governor Haruhiko Kuroda had implemented policies that would weaken the currency and benefit exporters including Toyota by making their goods more price-competitive and boosting the value of earnings from overseas sales.
Kuroda said Tuesday that economic conditions are all in place for wage rises, even as the central bank downgraded the economic outlook. He’s emphasized previously that pay increases hold the key to successfully boosting spending and inflation after years of stagnation.
Japan’s economy is struggling to shine under Kuroda’s easing. It shrank in the final three months of last year, the fifth quarterly contraction since Abe returned as prime minister. Gross domestic product dropped an annualized 1.1 percent, and falling private consumption was the biggest drag on the economy.
Workers in Japan eked out a 0.1 percent raise in 2015, while incomes dropped by 0.9 percent after adjusting for inflation. Real earnings have declined for the past four years, holding back consumer spending.
Kuroda has failed to push up inflation despite unprecedented monetary easing. The rate of increases in prices has dropped over the past year with The Bank of Japan’s key inflation target registering zero growth in January, putting it far from the central bank’s 2 percent goal. Consumer price inflation, excluding fresh food, was 0.2 percent, excluding sales-tax effects, a year earlier. The BOJ policy board announced at the end of that month that it would adopt a negative-rate policy.
“We’re likely to see negative inflation next fiscal year,” Dai-ichi’s Shinke said. “It’s a different story from last year, when it was easier to push for wage increases.”