Have Japanese corporations finally agree to comprehensive wage increases for their employees?

Bloomberg News reported on March 13, 2014 that Japanese labour unions have finally sought agreements from big employers such as Toyota Motors, Panasonic, among others to allow for wage increases to their employees. The announcement is well-timed in anticipation of the April 1st consumption tax hike from 5.0 percent to 8.0 percent, which could be a closely-watched economic event by many investors, as they try to assess the impacts of the pre and post consumption tax hikes. Most of the Japanese households and businesses have front loaded their spending on automobiles, clothing, and machinery, among others in anticipation of the uncertainties surrounding the upcoming consumption tax increases.

The most recent economic data published on March 13, 2014, which indicated some potential signs of a pickup in machinery orders by Japanese businesses. The data revealed that on a month-to-month comparison, machinery orders rose 13.4 percent in January 2014, outpacing the 7.0 percent median rate estimated by Thomson Reuters survey on a group of economists. Core machinery orders, considered by many as a volatile number, rose 23.6 percent in January, versus the median estimate of 18.8 percent annual increase. This is quite a significant pickup in the machinery orders, and it comes after the Bank of Japan (BOJ) announced its unchanged interest rate policy, and will increase their bond purchases. In addition, BOJ made the comment following the release of the latest machinery orders data, that Japanese corporations are urged to bump up their capital expenditure (capex) spending plans in order to achieve a viable growth outlook for Japan. The low capex situation has been a particular concern by the Abe government, as Japanese corporations are withholding, or have massively reduced their capital expenditure plans in anticipation of rate hikes starting from April. Prime Minister Shinzo Abe has also been actively urging Japanese corporations to increase their capital expenditures as it is one of the major drivers for growth.

The labour union negotiations over the course of the few months did produce an agreement where it has been agreed that there is to be increase in the amount of basic wages by an average of Japanese Yen 1,950 (USD 19) per month over the course of next few months this year. The union group, touted by Bloomberg News as one of the largest domestic union, the Japanese Trade Union Confederation (JTUC), has announced on March 12 that it has secured agreements of many Japanese corporations to adopt the wage hikes. However, many investors have expressed their scepticism primarily due to the size, and the minimal impact of such a move to counter the consumption tax increases. One of the reasons for the scepticism expressed by many is that Japan has been badly affected by the natural disasters (Tsunami, Earthquake, and the Fukushima Nuclear Facility explosions) on March 2011, and has to be forced by various circumstances to import more costly commodities such as crude oil in order to replace some of the energy requirements that were lost as a result of the shutdown of all major nuclear power facilities. Some Japanese households might not be able to afford to pay for essential household items, food, among other due to the high costs. The latest wage hikes are at best a short-term measure to counter the impacts of the sales tax increases in April, but is unlikely to produce a substantial cushions for many of these workers seeking to cope with the consumption tax hikes.

The issue of job security comes into play as many Japanese employees have shunned away from seeking for all-out wage hikes as they are more concerned about job security than being unemployed. However, with the impending consumption tax hikes, and other cost of living increases, the Japanese government is expressing its anxiety and frustration on Japanese corporations who are still refusing to bulge in favour of the greater benefit for the country as it seeks to end the decades-old deflationary conditions. Several Japanese corporations have been benefiting from the pro-growth policies under ‘Abenomics’ due to a much weaker Japanese Yen currency and many Japanese households are hoping that the Japanese corporations could relook at the wage policies and make some adjustments that will reward their employees, and at the same time, boost their productivity, and sense of ownership to their jobs. However, many Japanese corporations are also expressing their hesitation due to the uncertainties of the upcoming consumption tax hikes.

The latest announcement of an agreement being reached to secure wage increases on behalf of the Japanese employees is timely, and has been a long-delayed move. However, there is a need for Japanese corporations to do more than just hiking up salaries, such as programmes that will keep employees happy, and motivated to do their jobs, and other intangible issues to make work life less miserable.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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