Japan’s largest labour union, boasting a membership of 7 million, Rengo, negotiated this increase, which is higher than the 5.10% offered last year and 3.58% the year before.
In a move which will widely benefit workers across the country, Japanese companies have agreed to increase wages by an average of 5.25%. This is the largest pay hike in 34 years and the third consecutive year of robust growth, as the economy is being hounded by dwindling labour and measures are being taken to protect workers against increasing inflation.
Japan’s largest labour union, boasting a membership of 7 million, Rengo, negotiated this increase, which is higher than the 5.10% offered last year and 3.58% the year before. This is the polar opposite of wage stagnation, which was previously in place for over three decades.
According to Japan’s biggest business lobby, Keidanren, the average summer bonus payment at major companies jumped 4.37% this year compared to last, reaching a record 990,848 yen ($6,889). The Japanese economy has been grappling with a rapidly ageing population, causing an extreme labour crunch, with non-manufacturing sectors and small companies being hit the hardest, with some even declaring bankruptcy.
In January, Reuters published a poll which revealed that two-thirds of Japanese companies have been suffering from a labour shortage. This shortage is reaching historic levels, raising serious concerns over the country’s economic growth. 66% of the surveyed participants were in agreement that labour challenges posed a considerable hurdle to their businesses, while only 32% disagreed.
According to the survey, a third of the respondents agreed that the labour crisis was worsening, while a mere 4% believed there were improvements. However, 56% of the participants were of the opinion that the crisis remained in a state of stagnation.
Some of the reasons which have been identified for causing this crisis are the extension of retirement age, rehiring retired employees and intensifying the recruitment process, making it difficult for fresh graduates to land a suitable job. Although the official retirement age in Japan is 60, most companies have measures in place to allow the staff to stay on at least another five years.
Therefore, this wage hike has come at the right time for the country’s workers, particularly as workers around the world are combating high inflation rates, giving their Japanese counterparts more bargaining power. Companies have also conceded that a pay raise that exceeds inflation is now a necessity. Tokyo reported a 3.7% inflation, as measured by the core consumer price index (CPI).
The country’s central bank, the Bank of Japan (BOJ), has also said that consistent wage hikes are necessary to increase consumption, which will ultimately benefit the economy. The BOJ has been in the news for the past few months, as it is considering increasing interest rates yet again, after it temporarily halted plans due to the uncertainty surrounding Trump tariffs.
According to a Reuters report, Mizuho Research & Technologies forecasts a 4.7% surge next year, should oil prices decline, shielding the Japanese against the impact of the US tariffs on corporate profits. Financial analysts estimate that BOJ is likely to start increasing interest rates during the January-March quarter next year, and wage hikes will also likely gain traction around the same period.
In June, Reuters released a survey where economists indicated that the BOJ would announce the next 25-basis-point increase in early 2026. They also expect the Bank to lower the pace of tapering its government bond purchases from the next fiscal year. A majority also predict that the government could cut down on the issuance of super-long bonds.
While wage hikes seem an inevitability in Japan, economists also urge the non-manufacturing sector to be on par with the manufacturing sector to raise wages, as manufacturing is likely to be negatively affected by the US tariffs. Regardless of the long-term challenges Japan’s economy may face, it is clear that after 34 long years, consistent wage hikes are not just a priority but also a necessity.