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Japan automaker unions' underwhelming pay demands challenge Abenomics

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Japan's automaker labour unions are reducing their demands for pay rises for the next fiscal year from amounts sought the previous year, a move that could hamper the Abe government's efforts to stoke demand and defeat deflation.

[TOKYO] Japan's automaker labour unions are reducing their demands for pay rises for the next fiscal year from amounts sought the previous year, a move that could hamper the Abe government's efforts to stoke demand and defeat deflation.

The annual "shunto" wage talks are seen as crucial for the ultimate success of Prime Minister Shinzo Abe's aim to generate virtuous growth led by higher incomes and business investment.

The unions' modest demand underscores Abe's struggle in pulling Japan out of two decades of deflation and stagnation, with the global stock market rout and yen gains since the start of this year giving firms a perfect excuse to forgo wage hikes.

The labour union of auto giant Toyota Motor Corp, which sets the tone for annual wage talks across Japan, is seeking a 3,000 yen (US$26.31) increase in monthly base pay, half of what was sought last year.

Labour unions of other car makers followed suit - despite record profits Toyota and some others expect in this business year to March. This is the straight third year in which automaker unions have demanded wage rises, having secured increases in the previous two years.

The wage talks wrap up at other major firms in leading industries in mid-March, when companies' management will make their formal responses. "Taking into account slowing inflation and uncertainty over the economic outlook, we can't demand bigger rises in base salary just because our company logs record profits," Toyota union's spokesman Yasuyuki Takaki told Reuters. "We should seek higher bonuses when short-term profits rise, rather than base salary, which cannot be unwound in times of a business downturn." The sticky deflationary mindset of labour unions are what the Bank of Japan is trying to eradicate with its aggressive money printing and last month's decision to adopt negative interest rates to spur growth.

Leading blue-chip companies had consented to Abe's calls to raise wages since he returned to power in late 2012, agreeing to an average wage hike of 2.19 per cent in 2014 and a 2.38 per cent raise last year - a 17-year high.

In a sign that momentum is fading, Japan's biggest business lobby, Keidanren, has said wage hikes don't necessarily have to take the form of a hike in base salary - toning down from the more explicit requests it had made until last year.

"Labour unions have not shaken off their deflationary mindset," said Hisashi Yamada, chief economist at Japan Research Institute. "If labour unions of top firms lower base pay demand, that may make it harder for small firms to raise wages. If base pay stops rising, that could pave the way for return of deflation."

REUTERS