Japan commits to raising wages to achieve inflation target

Japanese Prime Minister Fumio Kishida aims to create an economic structure where wages are raised yearly to transfer wealth from firms to households.
By: | January 6, 2023

As part of efforts to put Japan’s economy on a sustained recovery path, Japanese Prime Minister Fumio Kishida has urged companies to increase wages above the rate of inflation.

Wealth accumulated by companies has failed to trickle down to households via higher wages in the past 30 years, a situation the government hopes to change, Kishida said. “I would like to create an economic structure in which wages rise every year.”

The need to hike wages was similarly echoed by Haruhiko Kuroda, Governor of the Bank of Japan (BOJ), who asserted that this would assist in maintaining BOJ’s efforts to sustain prices around its 2% inflation goal.

Their remarks come ahead of the annual spring wage negotiations between organisations and unions, which are said to play an important role in determining how soon BOJ will withdraw its stimulus programme, reported Inquirer.net.

To maintain a 2% inflation rate, Kuroda pledged to maintain an ultra-lose monetary policy, as he explained, “Japan’s economy will likely sustain fairly stable growth. The BOJ will support the economy with monetary easing so that its inflation target is sustainably and stably met accompanied by wage growth.”

READ: Japanese government committed to raising wages

The core consumer price index in November rose 3.7% from a year earlier, and analysts expect inflation to remain above BOJ’s target of 2% in coming months, which will impact households that have not seen much in wages and may spark concerns about a downturn in consumer spending.

Japan’s umbrella labour union has decided to demand a 5% pay hike in this year’s spring wage negotiations, which, coupled with a tightened job market and repeated calls by the government to raise wages, is pressuring organisations to hike wages.