TOKYO • Big Japanese companies offered smaller pay increases at annual wage talks yesterday as the economy sputters, tempering hopes that domestic consumption will offset external risks to growth.
Major firms are set to raise wages for a sixth year as Prime Minister Shinzo Abe kept up the pressure on businesses to boost pay in an effort to beat deflation that has dogged Japan for nearly two decades.
But as economic growth slows, firms have grown wary about offering big pay increases because that commits them to higher fixed costs at a time of uncertainty as company profits are levelling off.
Results of the "shunto" talks between management and unions - announced by blue chips in sectors like cars and electronics - set the tone for wage hikes across the nation, which have implications for consumer spending and inflation.
"I worry the momentum towards wage hikes may weaken as underlying inflation remains weak and there is a strong sense of uncertainty," said Japan Research Institute senior economist Hisashi Yamada.
"Uncertainty is high on the external outlook such as the US-China trade war and Europe's unstable politics. On top of that, a national sales tax is scheduled to increase in October."
A slowdown in the global economy, the US-China trade war and trepidation over the final shape of a deal to seal Britain's exit from the European Union have increased strains on businesses worldwide.
Faced with the heightened uncertainty about growth, cautious Japanese firms usually prefer to offer one-off bonuses and other benefits depending on annual profits.
They tend to focus more on the annual total sum payment than fixed base salaries, which will determine retirement payment and pension benefits.
Toyota, Japan's largest automaker, offered yesterday a pay rise of 10,700 yen (S$130) on average, down 1,000 yen from last year, domestic media reported. Electronics giants such as Panasonic offered a base pay rise of 1,000 yen, down 500 yen from last year.
A survey by the Institute of Labour Administration, a think-tank, predicted wage growth will slow to 2.15 per cent this year, pulling further away from the 17-year peak of 2.38 per cent in 2015, despite hefty cash piles at Japanese corporations.
A Reuters Corporate Survey last month found that a slim majority - 51 per cent of firms polled - saw wages rising around 1.5 per cent to 2 per cent this year, versus last year's 2.26 per cent average across all Japanese industries.
In the coming fiscal year from April 1, Mr Abe's government will start to implement work-style reform to curb Japan's notoriously long work hours.
The reform also includes "equal pay for equal work" aimed at narrowing the pay gap between full-time employees and contract workers or part-timers, and raising the retirement age.