KEY POINTS
- Record pay raises and bonuses signal shift in Japan’s labour market as inflation bites
- Japan’s major corporations also reported a record 4.37% rise in summer bonuses
- Wage growth is crucial for Japan’s economic recovery
TOKYO: In a move reflecting Japan’s evolving labour landscape, companies across the country have agreed to boost wages by an average of 5.25% this year — the largest increase in over three decades and the third consecutive year of significant growth.
This step comes as businesses wrestle with severe labour shortages and aim to protect workers from rising inflation pressures.
The figure, confirmed Thursday by Rengo — Japan’s largest labour union representing 7 million members — follows a 5.10% wage rise last year and 3.58% the year before, signalling a decisive break from decades of stagnant paychecks that have long defined the country’s employment scene.
Adding to the upbeat news, Japan’s top business lobby, Keidanren, revealed that average summer bonuses at major corporations have jumped 4.37%, reaching a historic high of 990,848 yen ($6,889), underscoring companies’ willingness to share prosperity amid tightening labour markets.
According to Reuters, Japan faces an acute workforce crisis driven by its rapidly ageing population, with labour shortages hitting non-manufacturing sectors and small firms particularly hard, pushing some businesses to the brink of bankruptcy.
A recent Reuters survey highlighted that two-thirds of Japanese companies see labour shortages as a serious or significant challenge to their operations.
While global workers grapple with inflation and wage stagnation, Japanese employees find themselves in a stronger negotiating position than in years past.
“There is an emerging consensus among companies that a pay raise exceeding inflation is a must,” said a government insider speaking on condition of anonymity. “It’s the new norm now.”
Japan’s core consumer price inflation, excluding fresh food, currently hovers around 3.7%, with fresh food prices soaring sharply, amplifying consumer concerns.
Sustained wage growth is seen as essential to fuel Japan’s consumption-driven economic recovery — a critical factor for the Bank of Japan (BOJ) to consider resuming interest rate hikes, which have been on hold for years.
Looking ahead, Mizuho Research & Technologies forecasts a 4.7% wage increase in 2026, assuming a drop in oil prices and some relief from the impact of US tariffs on corporate profits.
Saisuke Sakai, Mizuho’s chief Japan economist, noted, “As wage hike momentum is likely to be confirmed in January-March, we expect the BOJ to start raising interest rates during that quarter.”
This optimistic outlook is shared by a majority of economists surveyed by Reuters, with many predicting the BOJ’s next 25-basis-point rate hike will come in early 2026.
However, Toru Suehiro, chief economist at Daiwa Securities, cautioned that wage growth will need to shift from manufacturers — who have benefited from a weak yen — to non-manufacturing sectors next year, as US tariffs weigh on export industries.
Trade tensions between the US and Japan have escalated recently, with US President Donald Trump threatening tariffs as high as 30-35% on Japanese imports, surpassing the previously announced 24% rate that was temporarily delayed until July 9.
