Japan blue chips plan bigger pay hikes but smaller firms expected to lag

Wed Mar 18, 2015 4:41am EDT
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By Tetsushi Kajimoto and Chang-Ran Kim

TOKYO (Reuters) - Japanese blue-chip firms announced wage hikes that topped increases last year, but overall pay raises across corporate Japan are not expected to offset higher costs of living or be enough to drive a sustainable economic recovery.

Toyota Motor Corp (7203.T: Quote) and other major exporters said on Wednesday they will raise base pay for a second straight year amid government calls for help in generating a virtuous cycle of higher wages and prices to decisively end two decades of deflation and stop-start growth.

Thanks to Prime Minister Shinzo Abe's stimulus policies and a weaker yen, many exporters have made huge profits and boast record cash reserves. The raises will likely allow pay to catch up with the inflation spawned by the easy money of "Abenomics" in the coming fiscal year, economists say.

But import costs have risen on the back of a softer currency and many importers as well as smaller firms will be offering much smaller raises or not lifting pay at all, a Reuters Corporate Survey showed.

"A weak yen does more harm than good to small firms and those based in areas outside of Tokyo," said Hisashi Yamada, chief economist at Japan Research Institute. "And last year's sales tax hike is still weighing on private consumption, forcing small firms to cut their selling prices."

About 70 percent of Japanese workers are employed by small and medium-sized firms.

TAX HIKE PAIN   Continued...

A man walks on a corridor as he is reflected on a glass wall of the corridor at a business district in Tokyo February 26, 2015. REUTERS/Yuya Shino