TOKYO - Big Japanese companies offered the largest pay rises in a quarter century at annual labour talks which wrapped up on Wednesday.

They are heeding, at least for now, Prime Minister Fumio Kishida’s calls for higher wages to counter rising living costs.

Worker pay has been one casualty of years of sputtering growth in the world’s third-largest economy since the late 1990s. It has left Japanese pay well behind the Organisation for Economic Co-operation and Development (OECD) average.

But now a weak yen and rising commodity prices have driven up import costs and pushed inflation to the highest in four decades, prompting Mr Kishida to beat the drum for better pay.

The average wage increase at “shunto” spring wage talks in 2023 was the highest in about 30 years, according to the Keidanren business lobby, which did not give a more exact figure.

That put the increase broadly in line with analysts’ expectations for a boost of almost 3 per cent, which would be the highest since the 2.9 per cent in 1997.

“This spring marks a turning point for growth and wealth distribution,” Mr Kishida told a meeting with representatives of business lobbies and unions. He also said he aimed for a nationwide increase in the minimum wage.

A number of Japan’s biggest corporations – including Toyota Motor and Hitachi – said they had agreed fully to the requested increases from unions, results that were widely flagged in recent weeks.

“Given the surge in prices, employee expectations were running higher than most years,” Hitachi vice-president Kenichi Tanaka told a briefing.

The Rengo umbrella labour group had called for a 5 per cent pay hike.

Current year’s talks marked the first time that all of Japan’s major carmakers had fully accepted union demands, Mr Akihiro Kaneko, president of an umbrella group of carmaker unions, said.

But for workers at smaller companies – which make up almost 70 per cent of Japan’s workforce – the outlook was less rosy.

Those businesses have often struggled to pass on rising costs to their customers.

“I’m so jealous of workers at companies like Toyota,” said Mr Takehiro Kato, who works at a truck maker where wages have hardly risen. His employer recently paid out a one-time allowance to help counter inflation, but that was it. “You can’t count on money like that, because you don’t know when you’ll get another such payment again.”

It remains to be seen whether the higher wage trend will be sustainable, let alone create the “virtuous circle” of stronger economic growth and 2 per cent inflation long sought by Japan’s central bank.

The central bank attaches great importance to wage growth for achieving sustainable inflation, arguing that recent price rises have been from external factors such as higher import costs, rather than improving domestic demand.

In the last year, it has been a standout among major central banks in keeping to ultra-low interest rates.

Japan’s economy narrowly averted a recession in the final months of 2022 amid frail consumption.

Mr Takahide Kiuchi, a former Bank of Japan board member who is now executive economist at Nomura Research Institute, said: “Rather than a change in the stance of companies, this is more a case of a temporary reaction to unexpected and historically high prices. It is unlikely that wage hikes will just continue next year and after regardless of what happens with prices.”

Ahead of the talks, big companies had been expected to raise wages by around 2.85 per cent, according to a survey of 33 economists taken by Japan Economic Research Centre.

The talks cover both base and bonus pay.

Hitachi said on Wednesday it would increase overall wages by an average of 3.9 per cent, compared to a 2.6 per cent increase a year earlier.

“We must not make this wage hike just a one-off thing,”said Mr Masashi Jimbo, president of the Japanese Electrical Electronic And Information Union.

Every March, more than 300 major firms negotiate with their union following wage pace-setters such as Toyota.

Company unionists have historically tended to settle for relatively meagre pay hikes around 2 per cent in recent years, as unions are inclined to cooperate with management in keeping job security rather than aggressively demanding pay rises.

Some analysts are also sceptical that unions will be as aggressive in demanding higher pay in coming years if inflation eases, as it is expected to from the middle of the year.

Real wages fell in January at the fastest pace since May 2014 when the sales tax was raised to 8 per cent from 5 per cent.

Japan’s wages have grown just about 5 per cent over the last 30 years, far below an average 35 per cent gain among OECD member countries during the same period, data shows. REUTERS