TOKYO - Major Japanese firms, including Toyota and Panasonic, on Wednesday said they would boost employees' salaries for the first time in years, heeding a call from the prime minister ahead of a sales tax rise next month.
The deal came as companies wrap up annual labour talks known as Shunto, or the "spring offensive."
The usually low-key negotiations were being closely watched to see if cash-rich firms would put more money in workers' pockets, amid worries about the tax hike slamming the brakes on growth.
Japan's car sector was a key target, with all eyes on the world's biggest automaker Toyota which - along with other exporters - posted big profits on the back of sharply weaker yen since Prime Minister Shinzo Abe swept to power in late 2012.
On Wednesday, Toyota said it would raise employees' pay by an average of 2,700 yen (S$33) a month, while they would also get an average bonus worth about 6.8 months of their base wage - a common pay structure in Japan.
It was the Camry and Corolla maker's first wage hike in six years, and amounted to about a 0.8 per cent rise above current pay.
Among other firms raising wages were Nissan, Panasonic, Hitachi and Toshiba.
The focus would now shift from blue-chip firms to see if small and mid-sized companies, which employ the bulk of Japanese workers, follow the lead on pay.
The seemingly small wage hikes are a major development in a country that has suffered deflation for years, with consumers rarely facing higher prices for everyday goods.
Abe's growth blitz, dubbed Abenomics, is aimed at reversing falling prices and recent data suggest Tokyo is making headway in stoking lasting inflation, which would mean higher prices.
Consumers are also getting set for a sales tax rise to 8.0 per cent next month, up from 5.0 per cent. The move is seen as crucial to shrinking Japan's massive national debt, but there are fears it could weigh on consumer spending and slow growth.
Threat of Intervention
Abe has been calling on firms to raise salaries so workers would have more money to spend, a move seen as crucial to making his growth bid work.
On Tuesday, Abe's point man on the economy, Akira Amari, raised the stakes with an apparent threat to take unspecified action against companies that don't jack up wages.
The government "will react in some way" against firms which are "uncooperative with our policy of creating a virtuous economic cycle," he told reporters.
Tabloid newspaper Nikkan Gendai compared Amari's comments to the aggressive tactics of Japan's notorious yakuza gangsters.
Hideshi Nitta, a labour relations manager at top business lobby Keidanren, said firms recognised the need to reverse years of tepid growth.
"For the economy to grow sustainably, (Japan) needs to create a virtuous cycle - bigger profits leading to bigger investment, pay hikes..and better economic sentiment, which then leads to even larger corporate earnings," he said.
"This year's labour negotiations focused more on that macro point of view."
But concerns gathered pace this week as revised growth data showed the world's third-largest economy expanded at a slower pace than initially thought last year.
On Wednesday, a key consumer confidence indicator dropped in February, with the data likely to stoke further concerns about spending.
"Any recovery in consumer confidence...will be strongly dependent on an acceleration in wage growth," London-based Capital Economics said.
Japan's number-two automaker Nissan said its employees would get 3,500 yen more a month, and a bonus worth 5.6 months of regular pay.
The electronics sector, hammered by losses in recent years, also moved with six major firms hiking wages by 2,000 yen a month, their biggest-ever increase. Convenience store operator Lawson has agreed to its first wage rise in 12 years.
Bonuses are usually paid out in a lump sum twice yearly, but it's not guaranteed compensation.