Can Japan's wage increases extend to small business?

Jan 03, 2024 | News On Japan

TOKYO - Last year, Japan achieved its highest wage increase in 30 years. The key to this year's Japanese economy lies in whether this growing trend of wage increases can be extended to small and medium-sized enterprises (SMEs).

The first hurdle is this spring's wage increase in large corporations. Some of these companies, enjoying robust performance, have already announced wage increases surpassing last year's, fostering a sense of optimism.

However, more crucial will be the subsequent wage increases in SMEs. Many of these smaller companies struggle to pass on the increased costs to their selling prices or service fees in negotiations with larger corporations, making earnings growth a significant challenge. Firstly, it is essential to facilitate appropriate cost pass-through to create an environment where Japan's SMEs, which make up 99% of all businesses, can more easily raise wages.

Furthermore, for an improvement in our standard of living, wage growth must outpace inflation.

"People used to spend about 2,000 to 3,000 yen per shopping trip. Now it costs about 4,000 to 5,000 yen."

"With prices rising, even a slight increase in wages cannot keep up."

Whether or not wage increases that can withstand the pressure of rising prices can be achieved, irrespective of the size of the enterprise, will be a critical litmus test for the future of the Japanese economy.

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