TOKYO (Reuters) – A panel within Japan’s Labour Ministry put forward a recommendation on Monday for a 6% increase to the country’s national average minimum wage for the current fiscal year. This represents the most substantial proposed hike in over two decades, as the government endeavors to bolster an economy driven by wage growth.
Generating real wage growth has become a central objective for Japan’s policymakers, as enduring inflation continues to erode the purchasing power of households.
The ruling coalition led by Prime Minister Shigeru Ishiba has seen its majority weakened in both houses of parliament during recent elections, a development that reflects public discontent with the government’s economic strategy.
The recommendation would lift the average minimum wage to 1,118 yen ($7.57) per hour, a labor ministry representative stated. This would exceed last year’s 5% rise and would be the most significant increase in the 23-year history of the current wage framework.
Last year, Prime Minister Ishiba committed to making “persistent work” toward elevating the average minimum wage by 42% to 1,500 yen per hour by the decade’s end. This move accelerates the timeline from the mid-2030s target established by the prior administration.
Increases in the minimum wage carry major consequences for Japan’s overall wage trends, particularly because the share of the labor force impacted by these revisions is quite high when compared to other advanced economies.
Nevertheless, sharp wage increases present challenges for small businesses, which account for roughly 70% of employment in Japan. These smaller firms already dedicate a greater portion of their profits to labor costs compared to larger corporations and may find it difficult to accommodate additional increases.
This year, Japanese corporations have already committed to wage increases averaging 5.25%, their largest salary boost in 34 years and the third consecutive year of strong growth. This trend is driven by companies contending with a tight labor market and trying to protect their employees from the effects of inflation.
The trajectory of wages is a critical data point that the Bank of Japan will closely examine when determining the timing of any future interest rate hikes, especially as it cautiously unwinds its long-standing and extensive stimulus program.
($1 = 147.7600 yen)
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