Japan PM Kishida urges faster wage hikes to avoid stagflation

Japan’s Prime Minister Fumio Kishida attends a press conference in Tokyo, Japan, on Dec 16, 2022, addressing some topics such as National Security Strategy, political and social issues facing Japan in today’s World crisis. David Mareuil/Pool via REUTERS

TOKYO  -Japanese Prime Minister Fumio Kishida called on Thursday for business leaders to accelerate wage rises, warning that the economy risked falling into stagflation if pay rises lagged price increases.

“There are alarm bells warning that stagflation emerges if wage growth lags behind price hikes,” Kishida told a New Year gathering of three major business lobbies.

Stagflation is a combination of a low economic growth and surging inflation, damaging households’ purchasing power.

“The core of a virtuous economic cycle lies in wage growth. I’m calling for pay rises that beat inflation and the government will back such efforts,” Kishida said.

He said guidelines would be drawn up in June to increase flexibility in the labour market, making it more attractive for workers, who are used to the notion of jobs for life, to change jobs and move to high growth sectors.

The government is pledging to spend 1 trillion yen ($7.5 billion) in the next five years on reskilling workers, while encouraging firms to make pay scales more flexible.

Some Japanese firms and business lobby were quick to respond to calls for wage hikes.

Masakazu Tokura, the head of Japan’s largest business lobby Keidanren said achieving wage hikes centred on a base salary that doesn’t lag inflation is the duty of the corporate sector.

Sadanobu Takemasu, president of the convenience store chain Lawson said at the same gathering that his company would aim to achieve a 3-percent rise, as one baseline for wage hikes.

Still, Japanese firms tend to prefer one-off bonus payments for rewarding performance rather than raising fixed base pay, so they can easily adjust personnel costs in good times or bad.

The Japanese Trade Union Confederation, known as Rengo, is demanding wage rises of 5 percent at this year’s labour and management talks. Analysts consider that to be a tall order, since annual wage rises have averaged around 2 percent in recent several years.

($1 = 132.54 yen)