Japan to raise minimum wage by 3% to ignite consumer spending

[TOKYO] Japan's government said on Wednesday it will raise the minimum wage by 3 per cent this fiscal year as part of a stimulus package intended to strengthen domestic demand and address criticism that economic policy has left behind many low-income earners.

Raising wages is an urgent task for policymakers as Prime Minister Shinzo Abe is keen to ramp up consumer spending, which is seen as crucial to boosting domestic demand and pulling the economy out of 15 years of deflation.

"It is extremely important to stimulate consumer spending by raising the minimum wage, which will help Japan escape deflation and contribute to a positive economic growth cycle," Chief Cabinet Secretary Yoshihide Suga said at a press conference on Wednesday.

The government is drafting a stimulus package that could be unveiled in coming days as Mr Abe tries to recharge his economic agenda after a commanding election victory earlier this month.

A higher minimum wage could encourage gains in other wages, which would help the Bank of Japan, because it could make it easier to guide inflation to its 2 per cent price target.

Last fiscal year the government raised the minimum wage by 2.3 per cent, so a 3 per cent increase this fiscal year would mark a higher pace of wage gains.

The national average of Japan's minimum wage was 780 yen (S$10) per hour last fiscal year, meaning a 3 per cent increase would be worth about 24 yen.

Mr Abe's economic policies met with initial success after taking office in late 2012 as the BOJ's quantitative easing and a stock market rally fuelled gains in consumer spending.

However, the economy quickly lost momentum as wages rose at a very moderate pace and the government's structural reforms left many investors asking for bolder steps to end decades of stop-start growth.

REUTERS