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After decades of stagnation, wages in Japan are finally rising

PotassiumAsahara Yoshihisa, the boss of southern Japan lender Higo Bank beamed with pride as he explained plans to raise wages. Employees at the company will receive a 3 percent salary increase and seniority increases on a regular basis. But when asked when the last time employees saw such a rise, he put on a sheepish look. “Twenty-eight years ago,” he admitted.

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Higo Bank is no exception. According to statistics, from 1990 to 2019, annual nominal wages in Japan increased by only 4%, compared with 145% in the United States OECD, a wealthy country club. Unions emphasize job security over wage increases; bosses balk at raising wages amid lackluster productivity growth. This hampers efforts to avoid deflation or low inflation. Therefore, the Bank of Japan (Bank of Japan) maintained a dovish policy stance despite headline inflation above 4% this year.

But recent data suggest that change may be on the horizon: This year’s wage negotiations point to the fastest wage growth in 30 years. Daniel Black of investment bank Morgan Stanley called it “the biggest macro development in Japan in a decade”.Kazuo Ueda Bank of Japan The governor said on April 8 that data will be a key factor in deciding whether to tighten policy.

Parsing wage data in Japan requires understanding local quirks.Wages are set when companies and unions meet for annual negotiations, called ivy Or “Spring Offensive”. The headline figure consists of two parts: a predetermined seniority-based increase and a “base salary.” The latter has a greater impact on household spending and thus has the potential to affect inflation.

Base wages will rise 2.2 percent this year and overall wages will rise 3.7 percent, compared with 0.5 percent and 2.1 percent, respectively, last year, according to data released by the Japan Federation of Trade Unions on April 5. Blue chip companies are especially generous. Clothing giant Fast Retailing, which owns brands such as Uniqlo, is offering its permanent staff pay rises of up to 40%. More data will be released through July as small and medium-sized companies report results. Goldman Sachs estimates the final figure will be set at a 2% increase in base wages, the highest level since 1992.

Consumer prices are rising at a pace not seen in four decades. While most of the growth came from cost drivers such as imported food and energy, the higher headline figure raised expectations and put pressure on bosses. As Mr. Kasahara puts it: “Companies have a responsibility to provide wages that match inflation—not just the big companies in Tokyo.” into the workforce to compensate for its shrinking and aging population, but those opportunities are nearly exhausted.

for workers and Bank of Japan, the question is whether the raise is a one-time event or a step change. Even this year’s huge gains may not be enough to reassure policymakers.Haruhiko Kuroda Bank of JapanPrevious governors have said higher wage growth is needed to hit the 2% inflation target. In his last news conference as governor, Haruhiko Kuroda said that while wage talks were encouraging, policy easing should continue. At his first press conference on April 10, Mr. Ueda’s tone was similar.

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