Japanese companies have offered a 5.10% pay rise, the biggest in 33 years

TOKYO (Reuters) – Japanese companies have agreed to raise monthly wages by an average of 5.10 percent this year, the biggest increase in 33 years, the country’s main labor union Rengo said on Wednesday, concluding a survey of companies conducted since March.

The outcome of the “shunto,” which literally means the spring labor offensive, is seen as key to Japan achieving a positive cycle of economic recovery, driven by improved household incomes and consumption that offset rising living costs.

Achieving positive, self-sustaining growth could help policymakers put a definitive end to deflation and bring the Bank of Japan (BOJ) closer to further interest rate hikes as part of its efforts to normalize monetary policy.

In mid-March, major companies announced for the first time a wage increase of 5.28%, the highest in 33 years. The BoJ then made its historic decision to end negative interest rates and yield curve control.

As pay increases at large companies have become a reality, attention has now turned to whether these increases could extend to smaller businesses struggling to pass on costs to boost profit margins.

While hourly wages for part-time workers are rising rapidly due to the need for Japanese companies to attract young, skilled workers to address a chronic labor shortage, income gaps remain wide.

As part of efforts to close the gap, Prime Minister Fumio Kishida’s government has pledged to raise the minimum hourly wage to 1,500 yen ($9.27) from around 1,000 yen on average by the mid-2030s.

($1 = 161.8300 yen)