Japan Inc. cuts wage hikes as Abe’s efforts to bolster economy falters

Tokyo / Bloomberg

Japan’s major companies are giving lower wage increases next fiscal year as Prime Minister Shinzo Abe’s efforts to boost the economy falter.
Toyota Motor Corp. agreed to increase monthly base salaries 1,500 yen ($13) in the year beginning April, according to a statement from the company on Wednesday. That compares with a 4,000 yen hike this fiscal year.
Panasonic Corp. and Hitachi Ltd. have also both agreed to a 1,500 yen wage increase next fiscal year, according to separate statements from the companies Wednesday. That’s half their hike for this business year. Japanese companies are struggling with slowing profit growth, a weakening global outlook and a strengthening yen, which threatens to cut profits earned overseas.
“The biggest reason companies are offering smaller pay increases is because profits aren’t rising as much as last year,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo said by telephone Wednesday. “There are also concerns about the outlook for the economy, especially with uncertainty over China’s growth. On top of that we’re seeing hardly any inflation.”
Toyota’s resistance is the latest indication that the virtuous cycle sought under Abenomics may be stalling. Japan’s largest automaker predicts net income will increase 4.4 percent in the year ended this month, compared with 13.2 percent last fiscal year.

Yen Pressure
“The tide has turned,” Toyota President Akio Toyoda said after negotiations, Managing Officer Tatsuro Ueda told reporters Wednesday. Productivity hasn’t risen that much, resulting in lower competitiveness, while changes in the exchange rate and stronger than expected environmental regulation in emerging countries are adding to pressures, Toyoda said.
Nissan Motor Co., Japan’s second-largest carmaker, reduced its wage hike to 3,000 yen for next fiscal year, the company said Wednesday, compared with 5,000 yen this year. Honda Motor Co. agreed with its union on 1,100 yen raises, compared with 3,400 yen for this fiscal year, according to a faxed statement from Japan’s third-largest carmaker.
“The virtuous economic cycle that Abe has sought isn’t working well,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center Co. in Tokyo. “With Japan’s economic outlook dimming, company management can’t be aggressive about wage hikes that increase fixed costs.”

Kirin’s Raise
Kirin Holdings Co., Japan’s
second-largest brewer by market value, is one of the few companies bucking the trend, with its first wage increase in 15 years.
Japanese Economy Minister Nobuteru Ishihara emphasized that wages are still rising, speaking to reporters in Tokyo on Wednesday.
Japan’s steelmakers, which negotiate wage increases once every two years, are also increasing base salaries for next fiscal year.

Steelmaker Moves
Nippon Steel & Sumitomo Metal Corp., the nation’s largest, will increase wages 1,500 yen a month next fiscal year, compared with 1,000 yen this business year, the same as JFE Holdings Inc., the second-biggest, the companies said separately.
Toshiba Corp., grappling with an accounting scandal, will keep base salaries flat, as will Sharp Corp., which has agreed to a takeover by Foxconn Technology Group, the companies said.

Unions Retreat
Japan’s unions pared back wage demands early this year as the yen strengthened. Abe and his hand-picked Bank of Japan Governor Haruhiko Kuroda had implemented policies that would weaken the currency and benefit exporters including Toyota by making their goods more price-competitive and boosting the value of earnings from overseas sales.
Japan’s economy is struggling to shine under Kuroda’s easing. It shrank in the final three months of last year, the fifth quarterly contraction since Abe returned as prime minister. Gross domestic product dropped an annualized 1.1 percent, and falling private consumption was the biggest drag on the economy.
Workers in Japan eked out a 0.1 percent raise in 2015, while incomes dropped by 0.9 percent after adjusting for inflation. Real earnings have declined for the past four years, holding back consumer spending.