Toyota and Honda have agreed to the largest wage hikes in decades, setting an early example for annual pay negotiations. The Japanese central bank has been looking for signs of a wage-price cycle, which could lead to a policy change. Toyota agreed to give the largest wage raise in two decades on Wednesday, but did not disclose the percentage increase. Later in the day, Honda said it will raise wages by 5%, including the biggest increase in base pay in about 30 years.
These early moves by the major companies signal an upward move in the wage trend, as the highest inflation in over four decades eats into the purchasing power of households. Big pay raises from some of the biggest names in corporate Japan at an early stage could also put pressure on other companies to give larger-than-usual increases.
Wages have taken center stage in Japan as the Bank of Japan (BOJ) has indicated that it must see stronger growth in pay to ensure that the trend in prices is sustainable. The BOJ has a 2% inflation target, but even with key prices rising at 4%, the central bank remains committed to its massive stimulus program until wages also show larger gains. The bank has said that 3% wage growth is necessary to support stable inflation of 2%. Toyota said it agreed to increase pay, including base wages and bonuses, adding that this was the third consecutive year it met union demands in full.
Toyota is often the first Japanese company to announce the results of annual wage negotiations. In recent years, the labor union has requested wage increases across 12 categories based on type and rank, as opposed to an average increase of base pay in the form of a percentage. The company said bonuses this year would be equal to 6.7 months' salary. Honda said the raises would add up to a 19,000 yen ($141) bump in monthly pay. The automaker also said the salary hikes would prioritize younger employees who are more impacted by inflation. These wage increases are not only important for the workers but also for the economy as a whole. They have the potential to boost consumption and spur economic growth, creating a positive impact on the Japanese economy.