
Since sweeping back into office in December 2012’s Lower House election, Prime Minister Shinzo Abe has pursued an aggressive plan to revive Japan’s long-stagnant economy and create a “virtuous economic cycle” of increased corporate earnings, wages and consumption.

The first half of 2013 saw Abenomics rousing Japan’s economy from two decades of lethargy, with a dramatic weakening of the yen driving export competitiveness, GDP annual growth above 4 percent, and a 57 percent surge in the Nikkei 225—its best performance in more than forty years. While Japan’s economic growth slowed to an annual rate of just 0.7 percent by the fourth quarter of 2013, record corporate profits and business confidence suggest that Abenomics still has some fight in it.

In the context of rising consumer prices, however, this bright spot is perhaps most telling for whom it has left in its shadow: the average Japanese wage earner. While company confidence is on the up, declining base earnings and real wages left consumer sentiment at a 29-month low as of February. Cautioned by years of stop-start growth and continuing concerns about the health of the global economy, Japanese executives have been reluctant to share their profits in the form of hard-to-reverse base wage increases.

The Abe government has responded to this bottlenecking of profits by aggressively lobbying business leaders in support of a wage increase. Major corporations have long dominated Japanese business, and the Abe government hopes that a wage raise by Japan Inc. will lead to pay rises for other workers. In spite of these efforts, however, a February Reuters survey of big companies found more than 80 percent were not planning to raise base pay.

As such, the March 12 announcement that many leading automakers, electric appliance manufacturers, shipbuilders and heavy machinery manufacturers would raise pay scales has provided hope to Japan watchers, if not Japanese workers. Toyota Motor Corp., which has a strong influence over other companies, will raise its average monthly pay scale by 2,700 yen (about $26.60), while Honda Motor Co. is planning a 2,200 yen increase. Additionally, six major electronics firms, including Hitachi Ltd. and Panasonic Corp., will raise their wage scales by 2,000 yen per month, the highest on record for the sector. This response, which exceeds analyst expectations, represents a win for the Abe administration’s efforts to help end Japan’s long-standing deflation.

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The focus now turns to whether wage increases will trickle down to small and medium enterprises, and well as increasingly common non-regular workers. This is of particular concern given a 3 percent sales tax hike due to take effect in April, as wage increases by large companies are already relying on bonuses to make up for the difference between greater taxes and what amounts to 2-2.3 percent greater base pay. Compensation is likely to be less generous for the thousands of companies below the top tier, and particularly slow in coming for the almost 40 percent of Japanese who work informal jobs.

As noted by Rikio Kozu, Secretary-General of the Japanese Trade Union Confederation, “This is just a start.” It is encouraging that companies increasingly seem to realize this, with Hiromasa Yonekura, the head of influential business lobby Keidanren describing the recent positive developments as the “result of firms sharing recognition that (a wage increase) is needed to overcome deflation and realize a virtuous economic cycle.”

Even more encouraging, though, is the hard-edged commitment of the traditionally business-oriented Liberal Democratic Party-led government to make that virtuous economic cycle a reality: the government has threatened to take the unprecedented step of shaming big companies that do not raise wages. The Abe government appears to mean business in its efforts to right the Japanese economy—and not only for business.


Taylor M. Wettach is a participant in the Japan Exchange and Teaching (JET) Program and Pacific Asia analyst for Global Risk Insights. He previously completed a year-long internship on Asia at the Center for Strategic and International Studies (CSIS), where he assisted the U.S. Representative of the Japanese Business Federation (Keidanren).