Many Japanese companies raise salaries to record highs

Every spring, unions and corporate management hold talks — known as “shunto” — to set monthly wages before the start of Japan’s fiscal year in April. This year, large companies have largely met union demands for wage increases.

Nippon Steel has even exceeded union demands by offering a record monthly wage increase of 35,000 yen ($237), or 14%. “It is necessary to secure the retention of promising talent and enable all employees to work more effectively,” the company said.

Toyota did not disclose details of the pay increase but said it had fully met the union's demands. The Toyota Motor Workers' Union had asked for a record bonus equivalent to 7.6 months' salary, citing forecasts of an annual operating profit of 4.5 trillion yen ($30 billion) for the current fiscal year - the highest in history. The union also proposed specific demands for each type of job, with monthly pay increases of up to 28,440 yen ($193).

Hitachi and Toshiba said they had the biggest pay increases since the current bargaining format was introduced in 1998.

According to the Japan Council of Metalworkers (JCM), a coalition of industry unions, 87.5 percent of member organizations whose demands were met were fully met or exceeded.

Only about 16% of workers in Japan are union members, but economists see this year’s talks as an important sign of changes in monetary policy. Core inflation has been running at 2% or higher for nearly two years, but Bank of Japan Governor Kazuo Ueda has stressed that a “healthy cycle” of rising wages and prices is needed to reach the stability target, which would give the central bank the confidence to start raising interest rates.

Due to deflation, many Japanese companies have for the past three decades offered pay raises based on seniority, tied to the number of years an employee has worked at the company. The current wave of wage increases is much stronger, including increases regardless of seniority. At a meeting with business leaders and labor unions on March 13, Prime Minister Fumio Kishida said the negotiations “have created a strong upward trend in wages that far exceeds the 2023 increase.”

The wage hikes are due to a severe labor shortage and persistent inflation. A weaker yen, which boosts the profits of exporters, has also made it easier for major employers to promise higher wages. Some say Japan’s labor shortage is so severe that it will be difficult to attract workers without higher wages.