Higher minimum wage part of Japan stimulus

TOKYO • Japan plans to raise the minimum wage and introduce other steps to revitalise the economy, but the stimulus measures appeared to break no new ground on reforms that analysts say are needed to end decades of stagnation.

Prime Minister Shinzo Abe's government will also offer some financial support to people living off their pensions to bolster consumer spending, a copy of the draft proposals obtained by Reuters showed.

Citing unnamed sources, the Nikkei newspaper yesterday said the government is planning to raise the minimum wage by 3 per cent. But the draft did not provide any specifics and analysts say the government will need to do more to foster durable growth.

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

Some economists say the plans do not do enough to address Japan's rigid labour market and low worker productivity.

"This sounds like short-term stimulus, but Japan needs structural reforms more than stimulus measures," said Mr Marcel Thieliant, Japan economist at Capital Economics in Singapore. "We might get a growth spurt for the next one to two years, but this will not lead to stronger growth in the long term."

The economy has fallen into recession twice since Mr Abe took office in late 2012, and his government is under pressure to show that it can improve the economy with a package of steps due this week.

The national average of Japan's minimum wage was 780 yen (S$9) per hour in the last fiscal year, so a 3 per cent increase would still not buy more than a bowl of ramen - an illustration of the daunting task policymakers face in boosting consumption and growth.

Although Japan's minimum wage has been rising, it is only slightly above the average for OECD members, and labour unions have argued for bigger increases.

The government will also loosen regulations to encourage capital expenditure by small firms, and provide a time frame for lowering the corporate tax rate below 30 per cent to improve competitiveness.

The government has already committed to lowering the corporate tax rate to around 31 per cent next fiscal year, but companies have been asking for bigger tax cuts.

Economics Minister Akira Amari will present the draft today to the government's top advisory panel. Tokyo is due to finalise the economic stimulus measures by the end of this month.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 24, 2015, with the headline 'Higher minimum wage part of Japan stimulus'. Print Edition | Subscribe