Firms wary of big pay hikes in hints of wobbling economy

ReutersTOKYO (Reuters) — Big Japanese firms were set to offer smaller pay increases this year at annual wage talks that started Wednesday as the economy sputters, tempering hopes that domestic consumption will offset external risks to growth.

Over the past five years, major firms raised wages above 2 percent each spring as Prime Minister Shinzo Abe kept up the pressure on businesses to boost pay in an effort to beat deflation that has dogged Japan for nearly two decades.

But as economic growth slows, firms have become wary about wage hikes, because that commits them to higher fixed costs at a time of uncertainty as company profits are leveling off.

“I worry the momentum toward wage hikes may weaken as underlying inflation remains weak and there is a strong sense of uncertainty,” said Hisashi Yamada, senior economist at Japan Research Institute.

“Uncertainty is high on the external outlook such as the U.S.-China trade war and Europe’s unstable politics. On top of that, a national sales tax is scheduled to increase in October.”

A slowdown in the global economy, the Sino-U.S. trade war and trepidation over the final shape of a deal to seal Britain’s exit from the European Union have sharply increased strains on businesses worldwide.

Faced with the heightened uncertainty about the growth outlook, cautious Japanese firms usually prefer to offer one-off bonuses and other benefits depending on annual profits.

They tend to focus more on the annual total sum payment than fixed base salaries, which will determine retirement payment and pension benefits.

Results of the “shunto” talks between management and unions — announced by blue chips in industries like cars and electronics — set the tone for wage hikes across the nation, which will affect strength of consumer spending and inflation.

A Reuters Corporate Survey last month found a slim majority — 51 percent of firms polled — saw wages rising around 1.5 percent to 2 percent this year, versus last year’s 2.26 percent average across all Japanese industries.

Some analysts expect wage growth to slow further from the 17-year peak of 2.38 percent seen in 2015 to around 2.15 percent this year, despite hefty cash piles at Japanese corporations.Speech

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