Analysis | Workers in Japan Should Ask Their Bosses for a Raise

The twin scourges of low salaries and falling prices have been at the center of a proliferation of books in the past few years, stirring debate about the true state of Japan’s once-proud economy. Among them was 2021’s “Yasui Nippon” (“Cheap Japan”) by the Nikkei journalist Rei Nakafuji, which uses anecdotes such as the plates of 100 yen (77 cent) conveyor-belt sushi to show Japan’s economic weakness compared with other developed nations. “Binbokoku Nippon” (“Impoverished Japan”), by the economic commentator Kaya Keiichi, explored similar themes. 

The two books demonstrate that the country’s wages — flat in real terms for decades — had helped turn Japan into a pre-pandemic paradise for tourists who could get cheap, enviable quality and service. But, the authors argue, the trend has been a disaster for the economy overall.

Like many such narratives about Japan, the hand-wringing is exaggerated. Still, in recent months, the concept of “Cheap Japan” has been under attack as inflation, lower than elsewhere but real nonetheless, has risen. (The days of 100 yen sushi appear to be limited, with popular chain Sushiro recently raising prices after 38 years.)

A 2% rise in prices is more than enough to eat into real incomes, according to economist Norihiro Yamaguchi of Oxford Economics. Despite Japan’s lower inflation, real incomes will fall faster than in many other countries with nominal wage growth expected to be marginal, he writes. 

Cost-push inflation — when the trend is driven by rising costs, rather than higher demand — could leave Japan’s workers even poorer in real terms if employers don’t raise wages. So while it’s possible the Bank of Japan turns out to be right and inflation proves transitory, a once-in-a-generation opportunity to correct course will have been missed should companies fail to embrace this step. 

One crucial difference between the inflation in Japan and elsewhere is that price hikes here are mostly down to rising raw material costs and the yen, with none of the impact of increased wage demands seen in the US amid the Great Resignation. Japan hasn’t had such a movement, partly as it took a less severe blow from the pandemic. 

But while the weak yen is one cause, it also provides leaders with an opportunity. The currency is prompting manufacturers to move production back to Japan, such as the 100 billion yen electric vehicle production line Subaru Corp. plans to make, or the 50 billion yen plant for EV parts TDK Corp. is building. That’s going to lift demand for workers in an already tight labor market. 

Further government cajoling to boost capex and R&D investment will help, too. And wages are now so cheap that Japan is attracting attention as a base for foreign companies looking to diversify Asian manufacturing away from lockdown-prone China. 

Prime Minister Fumio Kishida, to his credit, has made wage gains a priority. But in simply urging more profits to be shared with workers, he’s likely to run into the same problems as his predecessor, Shinzo Abe, who got token increases when something much larger was needed to create the “virtuous cycle” of wage rises and inflation that never materialized. 

Companies must do more. It’s hard to escape the impression that their large cash piles are being used more for share buybacks and dividends. But these are businesses, not charities; they’ll only pay what they need to attract talent. Labor must also demand more. The wave of rising prices provides an opportunity for unions to make more ambitious demands, particularly as Japan corporate profits continue to surge. 

And just raising wages at listed companies won’t solve the country’s economic problems. Most firms aren’t listed, and many workers are not the full-time staff subject to these gains. Another long-term problem is the unsalaried — that is, pensioners — who are set to be squeezed without any expectation of increases.

Ultimately what’s needed to fix Japan’s wage problems is root-and-branch labor market reform — an area about which Kishida has had surprisingly little to say (perhaps with one eye on upcoming elections). Companies are understandably reluctant to give sharp pay hikes when labor laws prevent them from cutting workers loose during lean times. Employees, in turn, trade potential wage increases for guarantees of job security, and are still reluctant to change jobs. 

Kishida talks frequently of public-private cooperation. If he could persuade both sides to change — for workers to take on more risk in return for sharing in greater reward, and companies to update an outdated hiring system designed for boom years — he can turn this crisis into an opportunity. The surge in inflation gives Japan’s political, business and labor leaders a rare chance to finally take decisive action on wages. Such an undertaking would be daunting — but as those sushi plates show, change doesn’t come cheap.

More From  This Writer and Others at Bloomberg Opinion:

‘Invest in Kishida’? First Persuade Elon Musk: Gearoid Reidy

Don’t Fret for Hong Kong’s Dollar Peg Just Yet: Matthew Brooker

The BOJ Doubles Down on a Weakening Yen: Moss & Reidy

(1) Except for the brief surges attributable to increases in Japan’s sales tax.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Gearoid Reidy is a Bloomberg News senior editor covering Japan. He previously led the breaking news team in North Asia and was the Tokyo deputy bureau chief.

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