Bank of Japan Hopes Labour Shortages will Fuel Wage Growth

Consumer inflation in Japan hit a four decade high of 3.7% in November, however wages for permanent workers have only increased marginally as companies hold back on decision making during economic uncertainty.

The Bank of Japan Governor is hoping that a shortage of labour, alongside the increased costs of wages for temporary workers, will begin to be a significant influence on company wage structures.   Paradoxically, employees of the Bank of Japan itself have seen base salary increases of only 0.2% for 2022, with the bank commenting that it is difficult to implement wage increases without seeing other private companies do the same.

In response, the Japanese Government has indicated in late December that wage policy will be its top priority in 2023.  The Kishida administration has seen a decline in approval in the past 12 months as the cost of living has surged for the Japanese population.  The government has flagged business tax incentives and a demand for greater sharing of human resources practices as two possible interventions in the New Year to stimulate businesses to increase wages.

Outlook for Employers: While companies remain responsible for wage decisions, it is evident that the Japanese government will be pushing for greater visibility of wage and human resource practices, to increase wage and benefit competitiveness.  This will undoubtedly place more cost pressure on companies already struggling to find and retain talent in a constrained labour market.