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Japan Inc to announce pay hikes, seen short of PM Abe's 3 per cent target

[TOKYO] There will be good news and bad news when big Japanese companies announce annual wage hikes on Wednesday: workers will probably get more than last year's 2 per cent, and possibly the most in years, but they will fall short of Prime Minister Shinzo Abe's 3 per cent goal.

The focus is now on how much money companies will offer in bonuses and other benefits that might give workers a temporary boost, economists say.

The results of the "shunto" spring wage negotiations between corporate managements and unions, announced by the big automobile and electronics companies, will set the tone for wage hikes across the nation and could provide hints about future consumer spending.

Abe has been campaigning for a 3 per cent gain to spur consumption and banish the deflation that has dogged Japan's economy for nearly two decades. Bank of Japan Governor Haruhiko Kuroda has also urged a 3 per cent raise to nudge up inflation to the BOJ's long elusive 2 per cent target.

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Even though many Japanese companies are sitting on piles of cash from healthy earnings, they are wary of boosting base salaries because that commits them to higher fixed personnel costs. Instead, they prefer one-off bonuses.

Consumption is gradually rising, but as long as consumer inflation hovers just under 1 per cent, the Bank of Japan isn't likely to exit its super easy monetary policy anytime soon.

"The bigger picture is that wages are not rising any faster than labour productivity so they are not creating major cost pressures," said Marcel Thieliant, senior Japan economist at Capital Economics.

"Wage growth won't be this strong anytime soon so monetary policy tightening remains a distant prospect." ERASING GAINS Over the past four years, major companies agreed to raise wages about 2 per cent each spring. The bulk of that - about 1.8 per cent - comes automatically under Japan's seniority-based employment system. Anything beyond that is a hike in "base pay." Several economists have forecast major companies would agree this year to base pay increases of 0.5-0.6 per cent, which with the seniority-based automatic salary rise would lift wage growth to around 2.3-2.4 per cent.

That would be above last year's 2.11 per cent hike and in the neighbourhood of 2015's 2.38 per cent rise, which was a 17-year high.

However, there's a risk that wage gains could be offset by cuts in overtime pay in the coming year as companies come under pressure from the government to curb Japan's notoriously long overtime hours.

Also, rises in deductions for social security to service the rapidly aging population could cut into wage gains, analysts say.

Rising costs of social security have far outpaced gains in workers' total cash earnings in the past several years, squeezing disposable incomes at households.

Japan's unions tend not to be as aggressive in pressing their demands as those in the West because they attach greater importance to job security and maintain a sense of corporate loyalty.

Also, fewer workers are union members as companies rely more on part-timers and other nonregular workers, which deprives unions of bargaining power.