TOKYO -- Annual wage negotiations between labor and employers kicked into high gear Wednesday, as Japan's largest business lobby, Keidanren, sat down with embers of the nationwide association of labor unions.

The focus this year is whether to raise workers' base pay, which is seen as a key weapon in Japan's fight against deflation, but the actual results will likely vary widely among businesses.

The labor union at Toyota, which expects a record operating profit this fiscal year, plans to ask for an increase of 4,000 yen ($38.99) in monthly pay, its first request for a regular pay raise in five years. The request will be submitted to management on Feb. 12.

Unions at Honda, Mazda and Mitsubishi Motors are all likely to seek an increase of 3,500 yen. The amount far exceeds the 1,000 yen to 1,500 yen sought in 2008, prior to the Lehman shock.

Hitachi, Toshiba and Mitsubishi Electric's unions are also moving to double their requests from 2008 levels to 4,000 yen.

In addition to stronger corporate earnings, the government's push for employers to upgrade wages has created a tail wind for labor.

Management is generally open to accepting requests about bonus payments to share earnings growth with employees. But they are more cautious about raising base pay because it adds to fixed cost for years to come.

"One-time lump-sum payments are the normal way to pay back workers," said a Toyota official, adding that "the negotiations will be tough."

A survey of business leaders, released in late January by an affiliate of Japan Productivity Center, shows only about 30% of all respondents plan to boost base pay this spring.

Although overall corporate earnings appear to be recovering, individual performances are another story. While Toyota's pretax profit is seen growing 4% and Hitachi's 37% from fiscal 2007, those of Panasonic and Sharp will likely be 52% and 76% lower, respectively.

Department store operator Takashimaya, bolstered by higher consumption, is still likely to fall 23% short of its fiscal 2007 results.

And even at companies enjoying brisk earnings growth, such as Toyota and Hitachi, profit gains are largely attributed to cost cuts and a weaker yen. Sales have not completely recovered to pre-Lehman levels.

Because of the long-term ramifications of adding fixed costs, employers are reluctant to raise base pay unless they are confident of continued sales growth.

Data from the Labor Ministry shows that in 2013, total pay, including overtime compensation and bonuses, just about held steady at 314,150 yen a month for the average employee, suggesting that pay declines are coming to a halt.

But when inflation is factored in, the income level fell 0.5% in real terms. Without pay raises, further inflation and the higher sales tax starting in April could push down real income even further.

Listed firms currently have an aggregate cash reserve of 70 trillion yen, the largest sum ever recorded. Although they have abundant cash on hand, it is unclear how far they will hike base pay in Japan, given the market's limited growth potential. Management and labor will continue negotiations through mid-March, when employers are slated to give their answers.

(Nikkei)