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Japan’s largest labour union group announced its intention to seek wage hikes of at least 5% in 2025, following this year’s significant increase. However, economists are skeptical about the feasibility of such a high bump. Prime Minister Shigeru Ishiba has prioritized wage hikes to support the country’s economic recovery, with the Bank of Japan closely monitoring annual wage negotiations to ensure sustainable economic growth.

Earlier this year, Japanese companies agreed to an average 5.1% wage increase, the largest in thirty years, after a 3.5% rise last year. Despite this, many economists believe that a 4% to 4.5% increase is more realistic for next year, considering stable Inflation rates. In June, Inflation-adjusted wages in Japan saw an increase for the first time in over two years but declined again in August.

The focus for Rengo, the union group with about 7 million members, is on securing wage hikes at smaller firms, aiming for a minimum increase of 6% to bridge the income gap with larger companies. However, some smaller firms may struggle financially after raising wages to address labor shortages, as highlighted by the BOJ in a recent report.

As discussions on next year’s wage negotiations intensify, Rengo will finalize its position in December, leading to meetings between major firm management and unions around March. Japanese wages remained stagnant for decades until 2022 when inflationary pressures from rising raw material costs prompted firms to increase pay for employees.

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