TOKYO (Reuters) — Japan’s government, reversing its recent stance, will refrain from directly urging businesses to raise salaries by intervening in annual wage negotiations between management and labour unions next year, government sources told Reuters.
The government will instead focus on deepening debate on labour reform to raise productivity at Japanese firms, through a joint meeting between the government, businesses and labour unions, to be resumed later this year, they said.
The latest move reflects the government’s concern that it would be unreasonable to keep trying to force firms to raise wages without backing their efforts to raise productivity and profitability.
Still, the government intends to informally encourage companies with higher profits to share them with their employees by raising wages to mitigate the impact of a planned sales tax hike to 10 per cent from eight per cent in October 2015.
Prime Minister Shinzo Abe must decide by year-end whether to proceed with the planned sales tax increase next year.
Wages hold the key to the ultimate success of Abe’s reflationary policies dubbed Abenomics, aimed at engineering a sustainable growth cycle between corporate output, household income and spending needed to pull the economy out of deflation.
Wages have been sliding since the late 1990s in an economy mired in 15 years of deflation. The government said the economy was shaking off deflation but stopped short of declaring it had been conquered due to the risk of a return to price declines.
Abe urged companies to raise salaries through annual wage negotiations held earlier this year, leading many big firms to offer generous pay raises that could support household spending.
Government data showed last week that Japanese summer bonuses rose in July and regular pay grew for the second straight month. But real wages, which take into account consumer inflation, slipped for the 13th straight month, reflecting the effects of April’s sales tax hike to eight per cent from five per cent.
Japanese companies, particularly in the service sector, are struggling with low productivity while facing a labour shortage due to a fast-aging population and the rigid labour market.
The government is tackling labour market reform to make it easier for companies to fire and hire workers and facilitate labour turnover among companies, but the reform is facing a roadblock due in part to resistance from labour unions. — Reuters