Japan job market remains tight, keeping hopes for wage hikes
JAPAN’S labour market showed further signs of tightness in December, driven by a manpower shortage across a swath of sectors in a closely-watched development as companies engage in annual wage negotiations with unions.
The unemployment rate fell to 2.4 per cent, the Ministry of Internal Affairs reported on Tuesday (Jan 30), its lowest reading since January. The number of people with jobs rose by 380,000 from a year earlier, a 17th consecutive increase. Industries that led the increase in employment included manufacturing, lodging and food services.
While a separate measure showed a slight weakening of labour demand, the labour market remains at its tightest levels in years. The job-to-applicants ratio edged lower to 1.27 from 1.28, missing economists’ expectations for the gauge to be unchanged, the labour ministry reported.
The Bank of Japan (BOJ) is watching the labour market closely as it seeks evidence of a virtuous cycle linking rising wages with demand-led price gains. In its quarterly outlook last week, the BOJ said: “the rate of increase in scheduled cash earnings is likely to continue increasing firmly, in reflection of price rises and with labour market conditions continuing to be tight.”
The bank also expects other cash earnings to increase moderately, reflecting a recovery in economic activity. If authorities determine that the virtuous cycle is underway, they will undertake Japan’s first interest rate increase since 2007, ending the world’s last negative rate.
“With the prospect that the labour shortage will not be resolved in the near future, companies are strongly feeling the need to secure human resources,” said Shuji Tonouchi, senior economist at Mitsubishi UFJ Morgan Stanley. “I believe more companies will be willing to raise wages in the upcoming pay negotiations or hike salaries more than last year.”
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Prime Minister Fumio Kishida will press ahead with his campaign for higher wages in a speech to parliament on Tuesday, according to Kyodo News. Last year’s historic wage gains did not keep up with inflation, increasing pressure on household budgets.
Spring wage negotiations kicked off last week with ambitious demands from unions and optimistic pledges from some business leaders. Economists see a high likelihood of workers achieving pay gains comparable to or higher than those obtained last year. A survey conducted by the Japan Center for Economic Research found that large firms will boost salaries by an average of 3.85 per cent this year.
BOJ governor Kazuo Ueda said at a press conference following last week’s stand-pat decision that he will carefully assess economic data including results of the pay talks as he and his board continue to inch towards a policy normalisation that most economists expect by April.
Japan’s chronic labour shortage is becoming increasingly serious and could pose a drag on the country’s economy in the long run.
The number of bankruptcies due to manpower constraints reached a record 260 last year, according to a report by Teikoku Databank. The data firm also noted that the construction and logistics sectors are facing the most serious challenges, accounting for half of those businesses that went under. An increasing number of smaller firms are relying on foreign workers to fill their needs. BLOOMBERG
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