(Bloomberg) -- Japan’s labor unions have won pay rises for workers, although they’re still too small to generate the big increase in consumption that the Bank of Japan needs for inflation.
Initial results for this year’s “spring offensive” wage talks show workers receiving a 2.16 percent increase in monthly pay, according to figures released by the Japanese Trade Union Confederation on Friday. This compares with a 1.98 percent increase last year. The confederation, commonly referred to as Rengo, will announce final results around July.
Wage gains in Japan have fallen short of the amount needed to power the desired "virtuous cycle," where greater take-home pay leads to more spending, business investment and inflation. Prime Minister Shinzo Abe called for companies to hike pay 3 percent, the level that the Bank of Japan has repeatedly stressed is needed to help meet its 2 percent inflation target.
“The wage hikes will support consumption, but won’t trigger explosive spending,” Yasunari Ueno, chief market economist at Mizuho Securities, said before the data came out. “Looking at growth in base pay, we’re not seeing a surprisingly high level of increase.”
Monthly base wages, which are seen as a key indicator for broader growth in pay, rose 0.77 percent, according to Rengo. Last year it increased 0.48 percent.
“I believe that we’ve managed to draw out a very solid result,” said Rikio Kozu, Japanese Trade Union Confederation president. “It should act as a foundation for the negotiations ahead.”
This year’s negotiations took place with unemployment at its lowest level since 1993, and corporate profits at record levels. The tight labor market has so far not translated into significant income boosts throughout the economy.
In the first indication of the wage negotiation results to come, companies including Panasonic Corp., Toyota Motor Corp., and Nissan Motor Co. on Wednesday announced slightly higher annual wage increases compared last year.
Still, the initial set of results from Rengo mostly cover unions for Japan’s larger companies, restricting the data coverage to a portion of Japan’s labor market that may be more capable of raising wages. Smaller companies are expected to report their results over the next few months.
And the data also doesn’t include bonuses, or the pay of part-time workers. Once you include that and look at the whole labor force, the picture is less rosy.
©2018 Bloomberg L.P.