Japan urges regional banks to raise wages as inflation jumps

Bloomberg

Japan’s financial regulator is urging regional banks to raise wages for employees, people familiar with the matter said, responding to Prime Minister Fumio Kishida’s call for higher pay with inflation hitting its highest level since 1981.
Officials at the nation’s Financial Services Agency (FSA) are telling regional banks — which number around 100 — that it’s important to invest in talen.
Senior managers at three major regional banks said they are considering such a move given the rise in inflation. Still, one of them said compensation is a matter of management strategy and the regulator should not dictate it.
The nation’s annual pay talks are in the spotlight as the cost of living soars and the possible exit of the central bank’s ultra-easy monetary policy hinges largely on sustained salary growth.
Having resisted salary increases for years, a growing number of Japanese companies are preparing to increase compensation, including Dai-ichi Life Insurance Co., which is planning to raise wages for its 50,000 staff by 5% on average.
Bank of Japan Governor Haruhiko Kuroda has placed wage growth at the center of debate over whether potentially market-jolting policy change looms at the central bank after years of massive stimulus.
Kuroda has insisted that the BOJ’s policy must continue until there are signs that inflation can be sustained by stronger pay gains. Regional banks and many other Japanese companies start negotiations with labour unions in the spring to determine salaries for the fiscal year starting in April.
While Kuroda said pay hikes of 3% would support sustainable inflation of 2%, it isn’t clear how widespread the gains need to be or which wage indicator might trigger a policy shift.
While the proportion of unionised workers is almost 40% at companies with 1,000 or more employees, the overall unionization rate for Japanese employees hit a fresh low of 16.5% last year. The rate was 12.5% for women and 8.5% for part-timers.
Some 76% of Japan’s workforce are employed by firms with less than 1,000 workers. Ultimately, the shunto results only offer a snapshot of wage levels for a minority of people.
Cash earnings have grown at an average year-over-year pace of around 0.3% over the past decade, but gains have reached 2% in three of the last nine months of released data. The last time they rose above 3% was in January 1997.
A tight labour market is helping support the pay gains. But Japan’s track record also shows that strong demand for workers by itself doesn’t lead to an acceleration of wage growth.