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Slim raises at Japan’s spring wage talks no help to Abe, Kuroda

Bloomberg

Shinzo Abe and Haruhiko Kuroda shouldn’t look to spring wage talks for much help in spurring inflation and economic growth in Japan.

If anything, the picture emerging from the negotiations between some of Japan’s biggest companies and their unions is one of stagnation and slim raises. And the talks, most of which conclude next month, are taking place as a strengthening yen risks pushing down the earnings growth — and stock prices — of Japanese exporters.

The paltry increases on the table mean that the prime minister and Bank of Japan governor’s goals of reaching a 2 percent inflation target aren’t being helped by wage gains, which both repeatedly have pushed for. Earnings, including bonuses and overtime pay, fell in 2015 for a fourth consecutive year after accounting for inflation.

“The risk is on the downside for a pay hike at this year’s spring wage talks,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo. “Is it any wonder that more businesses will become cautious about pay rises that add to costs, if gains in the yen and declines in stocks intensify uncertainty.”

Shinke and Taro Saito at the NLI Research Institute forecast labor unions will win an average increase of about 2.1 percent in monthly wages, while Yoshitaka Suda at Nomura Holdings Inc. projects an increase of 2.15 percent.

Yet when seniority-based increases are taken out, the rise in salaries may only be about 0.6 percent, according to Suda and Saito. That is even less than the 0.69 percent gain last year. And the overall figures that include seniority adjustments also are down from last year’s 2.2 percent bump, released by the Japanese Trade Union Confederation, known as Rengo.

A chicken-and-egg scenario is playing out as weak inflation causes the unions to be less aggressive about pay increases, and the small raises help keep a lid on growth and consumer prices. Rengo, which is Japan’s largest association of labor unions, is seeking a base-pay increase of about 2 percent for the fiscal year starting in April after backing away from its 2015 demand for “more than” 2 percent.

“The biggest risk for Japan is that pay increases, which began in 2014, will stagnate, delaying a recovery in private consumption further,” said Saito of NLI Research.

Japan’s economy shrank in the final three months of last year, the fifth quarterly contraction under Abe. The gross domestic product fell an annualized 1.4 percent, trailing estimates from economists surveyed by Bloomberg, with declining private consumption the biggest contributor to the drop.

Eleven unions representing workers at Japanese auto companies, including Toyota Motor Corp., are seeking ¥3,000 ($27) monthly raises, the Confederation of Japan Automobile Workers’ Unions said in a statement on Feb. 17. The groups pushed for monthly increases of ¥6,000 a year ago and ended up with raises of ¥3,000 on average.

Daiju Aoki, a Japan economist at UBS Group AG, sees one bright spot — that nonmanufacturing companies such as retailers and service providers might be in a better bargaining position as they have benefited from an influx of foreign tourists.

Rengo plans to have early results of wage negotiations by some member unions in mid-March.