March 18, 2015 / 5:18 AM / 2 years ago

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

4 Min Read

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.Yuya Shino

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) 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

Bellwether Toyota said it plans to raise base salary by 4,000 yen ($33) a month, up from last year's increase of 2,700 yen and the biggest hike in over a decade, although it fell short of union demands for 6,000 yen.

Early union data from 25 companies showed an average hike of 3,013 yen in base salaries per month, roughly 75 percent bigger than last year's increase.

Last year, major firms raised wages an average 2.19 percent, a 15-year high, including seniority gains. Economists expect the increase to accelerate to around 2.5 percent this year.

That would translate into a rise of about 1 percent in wage-earners' total cash earnings across all firms and including part-time workers, economists reckon. Cash earnings rose 0.8 percent last year.

But even two years of pay raises are not expected offset a climb in living costs that came with a sales tax hike to 8 percent from 5 percent last April, the Reuters Corporate Survey showed.

Due to the sales tax hike, inflation-adjusted wages fell 2.5 percent in 2014. Economists, however, expect real wages to turn positive in the fiscal year starting next month, partly as tumbling crude oil prices push consumer inflation to a halt.

Wage hikes are also likely to be much rarer for the growing ranks of contract and other "non-regular" workers, underscoring the challenge to spreading the trickle-down benefits of Abenomics.

"Toyota is offering 4,000 yen, and that world is so foreign to me," said Souichi Namiki, whose pay dropped by a quarter last year when he was working as a contract teacher at cram school operator Ichishin 4645.T. "We are having to lower our living standards even more."

Additional reporting by Mari Saito, Maki Shiraki, Yoshiyasu Shida and Kaori Kaneko; Editing by William Mallard and Edwina Gibbs

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