Japan may urge firms to raise wages to jolt economy

TOKYO • Japan's government is considering pressuring companies to raise wages again next year as the economy stalls due to weak consumer spending, several government sources said.

Prime Minister Shinzo Abe's government has nudged major companies into raising wages for the past two years in the spring with a series of meetings with major business lobbies and labour unions.

Voices are now growing within the government to use the same tactic for next year's wage negotiations, the sources said, after data this week showed the economy shrank in the second quarter as exports slumped and consumers cut back on spending.

Mr Abe took office in late 2012 with a pledge to vanquish decades of deflation and economic malaise with structural reforms and monetary easing, but consumers have been cautious and inflation has ground to a halt.

The government's previous requests have lifted salaries at Japan's largest firms, but this has so far failed to spread through the broader economy. This strategy has also drawn criticism that the government is intervening too much in the private sector.

Private consumption, which makes up about 60 per cent of gross domestic product, fell 0.8 per cent in April to June from the previous quarter, or double the pace forecast by economists, data on Monday showed.

The Bank of Japan (BOJ) is trying to guide consumer inflation to 2 per cent some time around the first half of fiscal 2016, but the core consumer price index rose only 0.1 per cent in the year to last month, weighed down by lower energy prices. The government is also considering a new forum with private-sector companies to encourage more capital expenditure, the sources said.

Both the government and the BOJ consider capital expenditure an important driver of growth because this can create jobs, lead to higher salaries and increase productivity.


A version of this article appeared in the print edition of The Straits Times on August 19, 2015, with the headline 'Japan may urge firms to raise wages to jolt economy'. Print Edition | Subscribe