Agencies
Takayuki Okuyama, president of a plastic parts company with nine employees, questions whether Prime Minister Shigeru Ishiba’s pledge to significantly raise Japan’s national average wage is the right move, as he believes such a goal would squeeze small businesses like his.
Okuyama, 48, leads Nissindenki Co in Tokyo’s Ota Wardhome to more than 3,000 small-sized manufacturersand has raised his workers’ salaries nearly 3 percent each spring. In contrast, major companies recently implemented salary increases of more than 5 percent, their highest in over three decades.
"As I’m responsible for protecting my employees, I want to increase their salaries in line with the social trend,” he said, adding, "But with our business conditions unchanged, what can I do?” Amid higher food and energy costs due to Russia’s invasion of Ukraine as well as a weak yen, which pushes up import prices, Ishiba’s predecessor, Fumio Kishida, pledged to achieve salary hikes that outpace rising prices, aiming to raise Japan’s average minimum hourly wage to 1,500 yen by the mid-2030s.
Ishiba took office in early October and vowed to continue Kishida’s economic policies. He even brought forward the timing of achieving the wage hike goal to the end of the 2020s.
"It appears to be extremely challenging to meet the target, which requires salaries to rise more than 7 percent annually. Potential side effects, including backlash from companies, cannot be overlooked,” said Takuya Hoshino, chief economist at the Dai-ichi Life Research Institute.
The Liberal Democratic Party, led by Ishiba, forwent mentioning any specific timeline or wage increase target in its promises for the Oct 27 House of Representatives election, seemingly to avoid potential opposition from small businesses, which are already struggling to secure funds to raise salaries and retain workers.
The leading opposition Constitutional Democratic Party of Japan has also set a wage increase target of the same level. But the party, which receives support from labor unions, also did not mention when to achieve it with several other opposition parties following suit.
As the government seeks to establish a positive cycle of wage and price hikes and ensure an exit from Japan’s chronic deflation, major companies agreed to increase monthly pay by an average 5.58 percent in annual labor-management negotiations this spring, surpassing 5 percent for the first time since 1991, according to the Japan Business Federation.
Attention has turned to whether this trend will spread to small and medium-sized companies, which have employed an estimated around 70 percent of workforce in the country.
Japan’s average minimum hourly wage for fiscal 2024 came to 1,055 yen, effective from October. It marked an increase of record 51 yen, or 5.1 percent, from the previous year.
To achieve Ishiba’s goal of 1,500 yen by 2029, the average minimum wage needs to keep rising 7.3 percent every year, according to an estimate by Tomoya Suzuki, a researcher at the NLI Research Institute.
But many smaller businesses have been already under pressure to raise salaries, largely to prevent employees from leaving for better conditions.
The number of bankruptcies due to lack of employees increased 1.8-fold in the April-September period from a year earlier to 148, according to credit research firm Tokyo Shoko Research, highlighting the significant impact on business from surging wages.
Adverse impact from wage hike pressure has been increasingly felt in regional economies.
"Many companies in Shimane can’t easily raise salaries by an additional 500 yen,” Tatsuya Maruyama, governor of the western prefecture, told a recent press conference, expressing skepticism about the feasibility of Ishiba’s drive.
"It can’t be a realistic pledge unless accompanied by plans for how to achieve it.” Shimane has the second-smallest population among Japan’s 47 prefectures, after its neighbor Tottori, which includes Ishiba’s home constituency.
The central government has introduced incentives for companies to raise salaries, including tax cuts for those that do so. But it could take time before effects of such programs are felt by companies that are desperate to secure funds for wage hikes.