Toyota raises wages in Japan by biggest amount in two decades

Toyota has granted 68,000 unionised workers in Japan their highest pay rises in about two decades, giving a boost to Prime Minister Fumio Kishida’s campaign for wage increases to address rising living costs.

The move by Japan’s largest carmaker, a bellwether of its manufacturing sector, is expected to put pressure on other companies to follow suit in a country where wages have remained stagnant for most of the past 30 years.

After Toyota’s move, Honda also accepted its union demand in full to raise overall wages by about 5 per cent, including base pay and seniority-based pay.

The salary increases offered by the automakers come after Uniqlo parent Fast Retailing, gaming company Nintendo and drinks group Suntory all announced they were increasing wages for some workers.

Pressure on companies from the government and labour unions to increase wages this year has been particularly strong with Japan’s living costs rising at levels unseen in decades. Core inflation, which does not include volatile fresh food prices, hit 4 per cent in December, its fastest pace in 41 years.

Toyota on Wednesday said it had fully accepted its labour union’s request for an increase in base pay and seniority-based pay, without disclosing the amount of the increase. The carmaker reached an agreement with the union on the first day of negotiations that usually last weeks, saying its decision would create momentum for wage increases across the industry. Honda said it was also its quickest ever wage settlement.

“We’re at the forefront of encouraging distribution [of wealth] to the entire auto industry, and each one of us is working hard for it,” said Koji Sato, who will take over as the company’s chief executive in April.

“We are determined that we must do our part to raise wages to make our industry more competitive,” said Takanori Azuma, who will become chief human resources officer in April, at an online briefing.

Global investors are closely monitoring the so-called “shunto” round of spring wage negotiations by the country’s largest companies. The outcome of the negotiations will influence whether the Bank of Japan will begin its pivot towards interest rate normalisation.

Japan has been running an ultra-loose monetary policy for years, citing the absence of a virtuous cycle of moderately rising wages, consumption and prices.

Morgan Stanley MUFG Securities expects an average wage growth in base pay stemming from talks across corporate Japan to be about 1.2 per cent, excluding annual increments awarded for seniority.

That would be the largest increase since the late 1990s, but it would still fall short of the 3 per cent wage growth the BoJ has said is needed to sustainably achieve its inflation target, and below the Japanese Trade Union Confederation’s request for a 3 per cent year-on-year increase in base pay.

Many economists also remain sceptical whether this year’s momentum for rising wages will continue next year.

The current negotiations involve only the largest companies. Raising salaries is more difficult for small and medium-sized enterprises, which employ more than 70 per cent of the workforce and face rising costs for energy and raw materials.