Inflation nudges smaller firms in Japan to hike salaries - but progress is slow

The company is one of many smaller Japanese firms that are edging towards raising remuneration for their employees amid rising inflation and an intensifying labour crunch, mirroring a trend recently seen in big corporations.

"To reward the employees who made it through the Covid pandemic, and to boost their performance, we would like to raise the pay even just a little bit," said Kazunori Kobayashi, a public relations officer at Suzette, which runs more than 90 stores across the country.

Nearly 60% of Japan's small- and mid-sized companies plan to lift wages this year with about 20% aiming for a hike of 4% or more, a survey by the Japan Chamber of Commerce and Industry showed last month. The companies surveyed plan to boost salaries through basic pay hikes and other remuneration like bonuses.

Wages have barely risen in Japan since the asset bubble burst in the 1990s, but have crept up recently, as companies face pressure to compensate employees for the rising cost of living.

"It (the higher bonus) gives me more motivation at work so I'm very happy. If possible, I want to use the bonus payment to travel not only in Japan but also overseas," said Keiko Ishikawa who has been working for Suzette for 14 years.

However, progress on salary increments can be slow as small- and medium-sized businesses have to grapple with surging material costs and a more unpredictable margin than most big companies. Suzette, for example, has not raised prices for their sweets over the past few years, even during the pandemic. But the rising cost of materials could force them to raise prices later this year, said Kobayashi.

Thirty-four-year-old Naoki Kuroiwa, who's working for a mid-sized logistics firm, is sanguine about how his company is reluctant to pass on the cost pressure to customers.

"To be honest I'd like my wage to be raised, but I think it (the economic environment) is very tough in this world now. So, I understand that (it's hard to have a pay increase) and I hope we can manage to make ends meet at home," said Kuroiwa.

Still, big firms have offered pay hikes of 3.8% this year in annual wage talks with unions last month, the largest increase in three decades. Now, the attention has shifted to whether small firms, which employ seven out of 10 workers in Japan, would follow suit.

Bank of Japan officials also said the outcome of small firms' wage talks, which will be in full swing towards June, will be key to whether Japan sees durable wage hikes that will allow it to phase out its massive monetary stimulus.

Reuters