Japan's 2025 wage talks conclude with highest gain in 34 years
Workers at 5,162 companies affiliated with Rengo secured an average wage increase of 5.25% in this year's negotiations, according to the final update of pay deals announced by the trade union federation on Thursday. While the figure came in lower than the preliminary 5.46% reported in March, it still marks the highest growth rate since 1991. Rengo represents approximately 7 million workers, or around 10% of Japan's labor force.
Robust wage gains help back the case for the Bank of Japan to raise interest rates further, as the central bank weighs the appropriate timing of its next move amid global economic uncertainty. Gov. Kazuo Ueda has recently signaled a cautious stance due to a lack of clarity over U.S. President Donald Trump's trade policies, emphasizing the need to closely monitor data.
The central bank's nine-member policy board is scheduled to deliver its next decision at the end of the month, with markets broadly expecting rates to remain unchanged at 0.5%.
Thursday's report showed that workers at smaller firms achieved a wage increase of 4.65%, up from 4.45% in the corresponding tally last year. The gain was the largest in 33 years, and the wage gap with larger counterparts narrowed to 0.6 percentage points, compared to a 0.65 percentage point difference last year.
For 2025 talks, Rengo focused on boosting pay at smaller enterprises, setting a 6% wage hike target for them, higher than the 5% overall goal. In Japan, nearly 70% of employees work for small and mid-sized firms, making their pay increases critical to national wage trends.
Despite historic nominal wage gains, rising prices continue to erode purchasing power. The nation's key inflation gauge has stayed at or above the BOJ's 2% target for three years, meaning that real wages only grew during four months within that period.
Persistent inflationary pressures have also dampened consumption, gradually eating into corporate profit margins and limiting businesses' ability to raise wages. That could disrupt the virtuous cycle of wage and price increases that policymakers are aiming for.
Ahead of the upcoming national election later this month, Prime Minister Shigeru Ishiba's administration has pledged policy support to address both inflation and sustained wage growth. To ease the burden of rising prices, the ruling party announced a ¥20,000 ($139) cash handout per adult, with additional support for households with children. On the wage side, it promised support for labor-saving capital investment, setting a target to raise average annual wages by ¥1 million per person by fiscal year 2030.
As a counterproposal, opposition parties, including the Rengo-backed Constitutional Democratic Party and Democratic Party for the People, are advocating for a temporary cut to the consumption tax.
Looking ahead, Japan's economic momentum is at risk from the U.S. tariffs. Exporters, who have benefited from a weak yen in recent years, are beginning to scale back shipments and production in response to tariff pressures.
Despite months of negotiations, Tokyo has yet to finalize a trade deal with Washington. Japan continues to push for a comprehensive agreement that addresses sector-specific duties, especially those impacting the auto industry. Without progress, baseline tariffs on Japanese exports to the U.S. could revert to 24% or even higher from the current 10% next week.
The BOJ has also expressed caution over the wage trend in its latest outlook report, particularly for large manufacturers that tend to set the tone for broader wage trends.
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