A labor-management forum hosted by the country's largest business lobby on Jan. 31 discussed pay increases, marking the full-fledged start of the spring 2025 wage negotiations. This is a critical moment in the move toward sustainable economic recovery through broad-based pay hikes to overcome rising prices.

The meeting was organized by the Japan Business Federation, commonly known as Keidanren. Amid the recovery of corporate performance and labor shortages, momentum for pay hikes is growing. In the spring negotiations last year, the wage increase rate for large companies reached 5.58%, the highest level in 33 years. However, it has not yet caught up with soaring prices.

The Japanese Trade Union Confederation, also known as Rengo, has set a wage increase target of 5% or above overall and at least 6% for small- and medium-sized enterprises for this spring's negotiations. The higher target for smaller firms is aimed at correcting the disparity with large companies. Last year's wage increase rates were in the mid-4% range among smaller businesses, highlighting their delay in improving employees' working conditions.

Rengo President Tomoko Yoshino emphasized, "Wage increases (at higher rates) must spread to every corner of small- and mid-size companies and regional economies."

Without significant salary increases for small- and medium-sized businesses, which account for some 70% of employment, personal consumption will not rise, leaving no hope for revitalization of the Japanese economy.

The key lies in appropriate price transfers. According to a survey by the Small and Medium Enterprise Agency targeting about 300,000 companies nationwide, under 50% of firms were able to pass the total increase in expenses, such as raw material and labor costs, through to delivery prices.

Many large company owners point out that "the target for small- and mid-size firms is too high," but they cannot dismiss the situation as someone else's problem. They have a responsibility to accommodate price pass-throughs including labor costs, so that their small- and medium-sized subcontractors can secure resources for wage hikes. The national government must strengthen its oversight of large companies.

To achieve high pay hikes, those smaller companies must also improve productivity. Government measures such as helping them introduce digital technology are also important.

The wage increase rate for large firms with robust performance is again expected to remain high this year. With the intention of securing talent, large companies are taking a proactive stance. Suntory Holdings Ltd., for example, has announced a plan to raise wages by about 7% on a monthly salary basis.

Internal reserves accumulated through profits at large companies and other organizations exceed 600 trillion yen (about $3.87 trillion). This year, some of that surplus should be directed to smaller subcontractors, leading to overall wage increases across the entire supply chain.