(Bloomberg) — Whether Japan can maintain wage growth momentum will likely be a key factor affecting the longevity of Prime Minister Shigeru Ishiba’s government and the timing of the central bank’s next rate hike.
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The next round of annual wage negotiations will play an important role in shaping the trajectory of the trend while providing an indication of its continued strength.
The country’s largest trade union federation is reportedly aiming for wage increases of 5% or more again next year, an early indication that upward pressure on wages will remain at least as strong as this year. Wage increases tracked by the Rengo Federation reached a 33-year record of 5.1% in 2024.
Yet the extent of these wage agreements has not spread to all parts of the country’s workforce. Average cash earnings up to and including August this year averaged 2.3%, meaning wage increases lagged behind an even stronger price increase.
The pain of inflation on households contributed to the dismal support levels that prompted former Prime Minister Fumio Kishida to resign as leader of the ruling party. So for Ishiba, who faces general elections later this month, tackling wage growth and inflation is crucial to strengthening his leadership.
Wages are also being closely watched by the Bank of Japan as it looks for further evidence of a virtuous cycle of rising wages and prices before deciding on further rate hikes.
Here is a timeline of the key events related to wage negotiations in the coming year:
October 18: Rengo salary target
Rengo usually outlines his strategy for the annual wage negotiations in the spring in mid-October. This year, it will announce its basic plan on October 18, including a broad target for salary increases. According to public broadcaster NHK, Rengo is aiming for “at least 5% of the total wage increase”, the same goal as last year. The overall target includes an increase in base salary of at least 3%, NHK said.
Around November: Ishiba package
Ishiba ordered ministries earlier this month to put together an economic package, including steps to support wage growth, adding that he expects a larger additional budget to finance this than last year. Kishida also unveiled measures to support wage growth last November as part of a package worth more than ¥17 trillion ($114 billion). The measures include support for smaller businesses and aged care workers, along with an expansion of utility subsidies and tax breaks. Still, the public response was lukewarm, which impacted Kishida’s approval ratings. That’s a fate that awaits Ishiba if he reveals few new moves.
October-January: Pay plans of major companies
Large companies will announce their salary plans as early as October. These announcements will provide an initial indication of whether wage increases are likely to be greater than this year’s. Last year, Meiji Yasuda Life Insurance and Dai-ichi Life Insurance announced a profit target of 7% by the end of November. Financial institutions and retailers such as Nomura Holdings Inc. and Aeon Co. followed in December and January.
Early December: Rengo strategy
Last year, Rengo released a 30-page statement on December 1, formalizing the purpose of the wage increase and the negotiating strategy. The document also addressed a variety of labor issues, such as pay gaps based on age and gender equality in the workplace. In the months that follow, the prime minister typically meets with union and business leaders to strengthen calls for wage increases.
February: Early wage deals for large companies
Some large companies are entering into agreements with employees before the March payroll peak, providing insight into the overall trend. Last year, restaurant operator Skylark Holdings Co. announced at the end of February that they would offer a pay increase of more than 6%. Automakers such as Honda Motor Co. and Mazda Motor Corp. also announced deals at the end of February.
Early March: average wage demands
At the beginning of March, Rengo will probably collect the wage requests from its affiliated unions. On March 7, the federation reported that 3,102 unions had demanded an average total wage increase of 5.85%, marking the first time in 30 years that the request has exceeded 5%.
Mid-March: paid deals
About two weeks later, Rengo announces the first results. On March 15 this year, the federation announced that 771 unions had achieved a record wage increase of 5.28%, a result that influenced the BOJ’s decision to raise interest rates for the first time in 17 years just a few days later. increase. Rengo updates these results during the summer, with wage growth generally leveling off as more companies report their results.
April: Smaller companies
April’s figures are an important indication of the broader trend in wage growth, as outcomes for smaller businesses and part-time workers are increasingly taken into account. This year, as many as 2,000 companies with fewer than 300 employees reported their wage agreements around April 18. increased from 358 in the first count. About two-thirds of corporate employees work at companies with fewer than 1,000 employees, while almost 37% of all employees work on a contract, part-time or temporary basis.
July: final count
Rengo usually publishes his final count in July. The trade union federation said on July 3 that its members secured a 5.10% pay increase. Many of these profits appeared in paychecks starting in May. More than 80% of the increases in wage data were expected to be reflected in mid-August, according to a BOJ report.
August: Minimum wage
In addition, the government is encouraging prefectures to consider an increase in the minimum wage around mid-August. Ishiba expressed support for his predecessor’s initiative to raise the country’s minimum wage to ¥1,500 ($10), bringing forward the target from the mid-2030s to the 2020s. That implies a pace of annual gains that seems unlikely, but gains in the minimum wage could be another potential driver of higher overall wages.
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