Amid inflation's increasing impact on consumers, a labor ministry panel proposed a record hike of ¥31 for the nation's average hourly minimum wage on Monday.

The proposal follows tough talks between management and labor representatives on the panel, with both sides struggling to reach an agreement. Both were in agreement that a pay raise was essential in light of a wave of price hikes, but they were divided on how much it should be raised and failed to come to a conclusion even after more than eight hours of discussions in a meeting last week.

Monday's meeting lasted about seven hours, and the management and labor sides eventually agreed to give the green light to officially proposing the target, a labor ministry official said.

Last year, the two sides could not bridge the gap, so a vote had to take place — a rare occurrence.

With soaring import costs stemming from climbing oil and commodity prices, combined with a squeezing of some companies’ profit from the weak yen, the management side fears that firms, especially small and midsize ones, will have to shoulder an overly large burden if minimum wages are raised substantially.

A February survey conducted by the Japan Chamber of Commerce and Industry, a major lobbying body for small and midsize enterprises, showed 41.7% of the companies surveyed said the minimum wage should be raised this year, up from 28.1% last year. But 65.4% said that the current minimum wage is a “heavy” or “somewhat” of a burden on their business.

This year’s proposal — equivalent to a 3.3% increase — exceeded the record ¥28, or 3.1%, hike seen in 2021. The nationwide average for the hourly minimum wage is expected to rise to ¥961 from the current ¥930. The government aims to bump up the figure to ¥1,000 as soon as possible.

The labor ministry’s minimum wage panel usually comes up with a rough target for minimum hourly pay around this time of year. Then, prefectural committees decide on changes to the local minimum wage based on the target from the ministry panel, with the new rates implemented around October.

As the impact of inflation has become more visible, some economists had predicted that the panel would propose at least the same level of increase as in fiscal 2021, which ran through March.

As inflation will likely linger until around mid-2023, “there’s a substantial need to raise the minimum wage to maintain the standard of living,” said a report by the Daiwa Institute of Research released last month.

The report points out that domestic companies' earnings were strong last fiscal year, with overall ordinary profits hitting a record.

However, demand for eating out, travel and entertainment, which have been more heavily affected by the pandemic, remains low. In addition, companies in those sectors have been further hit by increased commodity prices.

“Companies' earnings are becoming polarized. When raising the minimum wage, there needs to be some accommodation, as not all companies have improved their ability to pay (higher) wages,” the report said.

In the past several years, the government has been eager to build momentum toward increases to the minimum wage. The country had seen hikes of about 3% for four straight years until fiscal 2020, when it was effectively kept on hold because of the economic fallout from the pandemic. Momentum appears to be back on track now that there have been record hikes for two consecutive years.

Consumers have been impacted by growing price hikes, with Japan’s core consumer price index having jumped year on year for the 10th straight month in June.

Although inflation has topped the Bank of Japan’s 2% target for three consecutive months, the BOJ has said it is not healthy inflation accompanied by steady wage increases.

Thus, the central bank is maintaining its dovish stance — in contrast to many of its foreign counterparts, which have been raising interest rates to contain inflation.

Information from Kyodo added