Japan is between a rock and a hard place on its minimum wage.

Households desperately need a big raise, while smaller businesses might not be in a position to handle an increase as they struggle with the weak yen.

When a labor ministry panel convenes sometime over the next few weeks to determine the new level, it might end up splitting the difference and leaving almost everyone disappointed.

Last year, the average rate was raised to ¥1,004 an hour nationwide, a record increase of 4.5%, or ¥43 an hour. The increase brought the hourly average above the ¥1,000 mark, a government goal.

Another record increase might be difficult this year.

After achieving the ¥1,000 target last year, the government set a new goal of ¥1,500 an hour by the mid-2030s, so the increases have to stay on pace.

“This will be the first minimum wage revision since the new target was introduced, so one focus is how that will be factored in,” said Munehisa Tamura, an economist at the Daiwa Institute of Research.

Households are also struggling and in need of higher incomes. Inflation has been above 2% since early 2022, and it peaked at an annualized rate of 4.2% in January 2023.

Real cash earnings have been falling year on year for more than two years. The weakening of the yen has made the situation only more difficult as prices of imported goods increase rapidly.

In dollar terms, the hourly minimum wage is currently about $6.40, which is below the U.S. minimum of $7.25.

In the annual shuntō spring labor negotiations, during which unions push for higher wages, a 5.1% average increase in wages was achieved this year among large companies. Labor shortages and inflation were cited for the increase, a 33-year high.

Balancing the needs of households are the troubles facing small businesses.

A number of small and midsized companies fear that a sharp increase of the minimum wage would add to their woes just as they are already struggling with higher costs due to the weak yen.

In a recent survey by the Japan Chamber of Commerce and Industry, 54.8% of the small enterprises surveyed said that the weakness of the Japanese currency was a big problem for their operations, compared with 47.8% in the previous poll, conducted in November.

Even at the current level, the minimum wage is affecting small and midsized firms.

According to a survey by the Tokyo Chamber of Commerce and Industry released in February, 65.7% of companies surveyed said that the current minimum wage is hitting them financially.

They are split on this year’s increase, as about 42% said that the minimum wage should not be raised or should be lowered, while another 42% said that it should be increased.

“I believe that the impact on corporate profits is becoming larger,” Tamura said. “So, how the minimum wage panel takes this into consideration will be another point to watch.”

Also balancing somewhat the need for higher wages is the recent tempering of inflation. While it remains high, the rate is down from its recent peak and now under 3%, offering households a bit of room to maneuver.

Around this time every year, the ministry’s minimum wage panel, which consists of representatives from the labor and management sides as well as experts, proposes a target figure for hourly wage increases. Based on that number, each prefecture makes a decision on its minimum wage in October.

Tokyo’s ¥1,113 an hour is the highest, and Iwate Prefecture’s ¥893 an hour is the lowest. Seven other prefectures have minimum wages above ¥1,000 an hour — Saitama, Chiba, Kanagawa, Aichi, Kyoto, Osaka and Hyogo.