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Kwan Weng Kin

The Straits Times

Publication Date : 25-02-2013

Japanese Prime Minister Shinzo Abe is hoping that better performance by Japanese companies, in particular export-oriented firms, may soon put a spring in the step of workers and more money in their pockets.

After his complaints about the value of the yen, the Japanese currency has weakened by some 16 per cent since last November, helping to lift exports of Japanese cars and other products.

Earlier this month, Japan's largest automaker Toyota raised its profits forecast to 150 billion yen (US$1.61 billion) for the financial year ending in March.

On February 12, Abe took the unusual step of asking Japanese business leaders at a meeting called by the government to help him end the country's deflation by passing on their profits to employees in the form of higher wages.

"I hope companies with improved performances will make efforts to raise the pay of their employees," he said.

He also plans to cut corporate taxes for firms that raise wages.

To get the economy growing again, Abe has put pressure on the Bank of Japan to set an annual inflation target of 2 per cent.

More take-home pay for workers will help boost consumer spending, leading to a rise in prices and a better chance of licking the deflation that has hobbled Japan's economy for years.

If wages do not go up in tandem with inflation, consumers will feel worse off than before, a situation Abe clearly wants to avoid, especially before July's Upper House elections which he hopes to win.

Abe hopes his call for higher wages will be reflected in the shunto - or spring offensive - wage talks between unions and employers now under way.

These negotiations, which set the size of monthly wage hikes and bonuses for the coming year, are expected to be concluded in the middle of next month.

More unions this year are demanding a rise in base pay and bonuses amid expectations of an upturn in the economy as a result of Abe's economic policies.

While many companies are said to be receptive to higher bonuses and other one-time payouts which depend on earnings performance, they are wary about raising monthly pay, which increases fixed costs and is harder to trim in a downturn.

Employers are also bracing themselves for higher labour costs from April.

Under a new law, they will be obliged to keep workers on their payrolls until the age of 65 if they wish to continue working after the current retirement age of 60.

In a bid to improve work conditions, the government will encourage employers to pay higher wages to part-time workers or convert them to full-time employees.

Hiromasa Yonekura, chairman of the Nippon Keidanren, Japan's biggest business federation, told reporters earlier this month that while the economy is showing improvement, "there are no guarantees" that it will last.

A weaker yen is not without drawbacks. While it makes Japanese products cheaper against their overseas rivals, it raises the cost of energy, materials and components that have to be imported. So far, only one major employer has heeded Abe's call to raise wages.

Takeshi Niinami, the president of convenience store operator Lawson who sits on a government panel exploring strategies to boost economic growth and competitiveness, has pledged to raise annual pay by 3 per cent for most of his 3,300 full-time staff.

Employees with young children are expected to benefit the most.

Economic Revitalisation Minister Akira Amari hailed Lawson's move, saying it helps to "brighten up" the economy. The government hopes more companies will follow suit.

Finance Minister Taro Aso recently berated Japanese firms for diverting excess profits into internal reserves as a hedge instead of sharing them with employees.

Companies, however, argue that they need to build up strong internal reserves for investing overseas or for buying up foreign companies in order to maintain their international competitiveness in tough economic times.