Even Japan... Raising Base Salaries Amid Soaring Inflation

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Amid the global surge in inflation, Japanese major corporations have been responding by implementing base-up (basic salary increases) one after another, the Nihon Keizai Shimbun reported on the 29th. Attention is focused on whether Japan's economy, which has seen little wage growth and frozen personal consumption due to the effects of deflation, will somewhat ease with this wage increase.

The Nihon Keizai Shimbun reported that according to the final tally of Japanese companies, the average wage increase rate combining wage hikes and regular promotions in the 2022 spring labor-management negotiations rose by 0.29 percentage points year-on-year to 2.07%. This is the first time in three years that the wage increase rate has reached the 2% range. Since it is difficult to lower the basic salary when corporate performance deteriorates, Japanese companies have shown a 'cautious mode,' but the situation has changed. Major corporations implementing summer wage increases this year raised basic salaries to levels exceeding 2%.

According to the report, glass manufacturer Asahi Glass (AGC) implemented a base-up of an average of 6,307 yen (approximately 61,600 won) last month. This was the first time since 2008 that it was applied across all job categories, and the wage increase rate excluding regular promotions reached 3.92%. Japanese chemical company Sumitomo Chemical had a wage increase rate including regular promotions of 3.7%, and Japanese semiconductor company Disco recorded 8.5%. It was the first base-up in 14 years for AGC and in 4 years for Sumitomo.

In the case of large Japanese retailer Otsuka Shokai, the basic salary for regular employees was uniformly increased by 10,000 yen starting last month. This corresponds to an average basic salary increase rate of about 2.72%. The Nihon Keizai Shimbun explained that this wage increase across all job categories appears to be the first since the company went public in 2000. Some Japanese companies, such as major home appliance retailer Nojima, are also providing support payments of 10,000 yen monthly from July in the form of bonuses to offset rising prices.

The reason why Japanese major corporations have simultaneously raised basic salaries like this is due to rising inflation. With global price increases, Japan's consumer price index (CPI) has exceeded the Bank of Japan's (BOJ) target of 2% for four consecutive months recently. The Dai-ichi Life Research Institute estimated that the household burden for families of two or more will increase by about 100,000 yen annually this year.

The Nihon Keizai Shimbun stated, "In Japan, which has long been under deflation, it was difficult for corporate sales to increase and wage hikes did not progress, which became an obstacle to personal consumption, creating a vicious cycle of economic recession."

According to the Organisation for Economic Co-operation and Development (OECD), based on purchasing power parity reflecting living standards by country, Japan's real wages last year ranked 24th out of 34 countries. Japan's real wage growth rate was only 7% compared to 2000, significantly lagging behind the United States (30%) and Germany (19%).

The Nihon Keizai Shimbun evaluated, "While corporate cash holdings remain at record highs, the labor income share is at historically low levels," adding, "Companies have sufficient capacity to raise wages." However, it also noted that if wage increases in next year's labor-management negotiations, which will fully begin this fall, fail to keep pace with inflation, there is a risk that consumption will shrink and corporate profits will decline.

This content was produced with the assistance of AI translation services.