Japan economic panel calls for early start of talks on raising minimum wages

By Makiko Yamazaki

TOKYO (Reuters) – Japanese Prime Minister Shigeru Ishiba’s economic advisory panel on Wednesday called on the government, management and labour unions to swiftly start talks on raising minimum wages, a key Ishiba policy initiative that has sparked a backlash from businesses.

The panel’s call was made at its first meeting under Ishiba’s administration to prioritise policies in the government’s economic package expected to be unveiled in the coming months.

Ishiba’s Liberal Democratic Party (LDP) has pledged to make “untiring efforts” to raise the average minimum wage by 42% to 1,500 yen ($9.8) per hour by the end of the decade, bringing forward the target from the original mid-2030s set by the government last year.

“The government, labour unions and management should swiftly start discussing the government plans to raise minimum wages in the medium and long term,” the panel said.

It also proposed measures to ensure subcontractors can pass on rising costs along the supply chain, including tighter scrutiny over businesses unfairly squeezing profits at their subcontractors to suppress costs.

Decades of slow wage growth in Japan has been cited by economists and policymakers as a major impediment to boosting domestic demand and fostering sustainable economic growth. While companies have started to address the pay issue in the past two years, the general consensus is more needs to be done to bring Japan closer to its global peers.

The average annual salary in Japan was $42,118 in 2023, well below the $55,420 average across the OECD (Organisation for Economic Co-operation and Development) developed economies, according to OECD.

The LDP’s wage-hike pledges have already sparked a backlash from businesses. The chief of Japan’s main business federation, Keidanren, said the pace of wage hikes needed to hit the LDP’s goal may be hard for many small companies to achieve.

Growing political instability will also make it harder for the LDP to press ahead with key policies on its agenda after its coalition with longtime partner Komeito failed to retain a majority in lower house elections on the weekend.

The panel was launched by former Prime Minister Fumio Kishida in 2021 to work out a strategy to tackle wealth disparities and redistribute wealth to households in a “new capitalism” programme.

Ishiba has said he will uphold his predecessor’s new capitalism policy drive, focusing on getting the economy to fully shake off the deflation that has weighed it down for the last three decades.

($1 = 153.2500 yen)