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Japan Has a Low Risk of a Wage-Price Spiral and That’s a Mixed Blessing

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SAKATA, Japan—Miki Iwai, 29, says she has never asked for a raise and isn’t about to start this year, even with inflation at a four-decade high.

The sake brewery worker says she started tracking household expenses recently to cover the higher price of gasoline.

“If I manage it carefully, I can still add to my savings,” she said. Her boss says he’s raising wages, but probably not enough to keep pace with inflation.

Here at Tatenokawa Inc.—a brewery in business since 1832—and at hundreds of thousands of other Japanese small businesses, there is little risk of wage increases spiraling out of control. That is the good news.

It is also the bad news. After 30 years of stagnation, wages in Japan still aren’t going up much.

The country illustrates the difficulty of achieving the right balance between prices and wages. In the U.S., both are going up too fast, Federal Reserve Chairman

Jerome Powell

 has said. Japan is still worried about both going up too slowly, which could be worse. 

In recent decades, sluggish wage increases in Japan have suppressed consumer demand, made it difficult for companies to raise prices and resulted in lackluster economic growth.

Recent announcements by some big companies have suggested the country might be breaking out of its negative cycle.

The Tatenokawa sake factory has boosted wages for employees but its owner says he is cautious about more raises.

In January,

Fast Retailing Co.

, the owner of Uniqlo clothing stores, said it planned to increase annual salaries by as much as 40% to match global standards.

Nintendo Co.

plans to increase the base salary for all its employees, including part-timers, by 10%. Major Japanese companies are set to release their wage plans for the coming year on Wednesday.

But two-thirds of Japanese workers are employed by small and midsize companies, and those firms are more cautious. According to a survey by Shoko Chukin Bank, small companies are expected to raise wages by just less than 2% this year, not including seniority-based increases.

At 60-employee Tatenokawa in the north near the Sea of Japan coast, Ms. Iwai works in a warm, humid room sifting koji—or rice malt—with her hands to help break down the starch in the rice into sugar.

Jumpei Sato, the brewery’s owner, said he has consistently boosted wages, including a raise decided in December equivalent to about $110 to $150 a month for a typical worker. Looking ahead, he said he wanted to do more but was cautious because he hasn’t been able to raise prices enough to cover higher costs of power and bottles.

He increased the price of his mainstay Junmai Daiginjo brew in a 720-milliliter bottle to ¥1,550 from ¥1,400 last year, the equivalent of a rise to $11.64 from $10.51, with another increase by about $1.49 coming in May. 

Tatenokawa factory owner Jumpei Sato said his workers haven’t asked for more money beyond the raises he decided.

“I fear that sales may drop after we raise prices,” Mr. Sato said. “Japanese are the pickiest and toughest people in the world.”

In Japan, companies passed on only 48% of their higher costs to consumers in the final quarter of 2022, whereas in the U.S. companies passed on all their costs plus an additional 34%, according to estimates by Mitsubishi Research Institute economist Akihiro Morishige.

Mr. Morishige said customers tend to accept a one-time price increase caused by higher raw-material costs but are less forgiving if the reason is higher wages, because Japanese people assume wages stay flat.

Prime Minister

Fumio Kishida

is urging businesses to raise wages enough to compensate for inflation. He hopes to jump-start a favorable cycle in which workers earn more and spend more, encouraging businesses to invest more.

The Japanese Trade Union Confederation, which represents about seven million members, is seeking a wage increase of about 5% this year, its largest request since 1995.

Inflation reached 4% recently, but there are signs it has begun to fall back and the

Bank of Japan

expects the rate to fall below 2% later this year.

Bank of Japan officials have laid out their ideal scenario: Overall prices should grow 2%, a level that allows for monetary-policy flexibility, while wages should increase 3%, meaning workers are bringing home more in real terms every year. 

January was far from ideal in Japan. Real wages, reflecting the impact of inflation, fell 4.1%. 

Some economists say Japanese workers may finally be due for sustained wage increases because seniors and working-age women who helped fill labor gaps over the past decade are already tapped out.

Akira Igarashi, a production manager whose job includes mixing sake, said he didn’t have much desire for a raise.

A report this month by economic-forecasting firm Oxford Economics said the labor shortage will push up wages, especially for “younger workers who have started switching jobs more frequently in search of higher wages.” 

For now, Mr. Sato said his employees haven’t asked him for more money beyond the raises he decides on his own. 

“I don’t really have much desire for higher wages. Also, I understand the current conditions the company is in,” said Akira Igarashi, 37, a production manager whose job includes mixing sake in tall tanks with a long spatula.

“I don’t want this company to go under,” Mr. Igarashi said. “I want this company to expand further.”

Write to Megumi Fujikawa at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


SAKATA, Japan—Miki Iwai, 29, says she has never asked for a raise and isn’t about to start this year, even with inflation at a four-decade high.

The sake brewery worker says she started tracking household expenses recently to cover the higher price of gasoline.

“If I manage it carefully, I can still add to my savings,” she said. Her boss says he’s raising wages, but probably not enough to keep pace with inflation.

Here at Tatenokawa Inc.—a brewery in business since 1832—and at hundreds of thousands of other Japanese small businesses, there is little risk of wage increases spiraling out of control. That is the good news.

It is also the bad news. After 30 years of stagnation, wages in Japan still aren’t going up much.

The country illustrates the difficulty of achieving the right balance between prices and wages. In the U.S., both are going up too fast, Federal Reserve Chairman

Jerome Powell

 has said. Japan is still worried about both going up too slowly, which could be worse. 

In recent decades, sluggish wage increases in Japan have suppressed consumer demand, made it difficult for companies to raise prices and resulted in lackluster economic growth.

Recent announcements by some big companies have suggested the country might be breaking out of its negative cycle.

The Tatenokawa sake factory has boosted wages for employees but its owner says he is cautious about more raises.

In January,

Fast Retailing Co.

, the owner of Uniqlo clothing stores, said it planned to increase annual salaries by as much as 40% to match global standards.

Nintendo Co.

plans to increase the base salary for all its employees, including part-timers, by 10%. Major Japanese companies are set to release their wage plans for the coming year on Wednesday.

But two-thirds of Japanese workers are employed by small and midsize companies, and those firms are more cautious. According to a survey by Shoko Chukin Bank, small companies are expected to raise wages by just less than 2% this year, not including seniority-based increases.

At 60-employee Tatenokawa in the north near the Sea of Japan coast, Ms. Iwai works in a warm, humid room sifting koji—or rice malt—with her hands to help break down the starch in the rice into sugar.

Jumpei Sato, the brewery’s owner, said he has consistently boosted wages, including a raise decided in December equivalent to about $110 to $150 a month for a typical worker. Looking ahead, he said he wanted to do more but was cautious because he hasn’t been able to raise prices enough to cover higher costs of power and bottles.

He increased the price of his mainstay Junmai Daiginjo brew in a 720-milliliter bottle to ¥1,550 from ¥1,400 last year, the equivalent of a rise to $11.64 from $10.51, with another increase by about $1.49 coming in May. 

Tatenokawa factory owner Jumpei Sato said his workers haven’t asked for more money beyond the raises he decided.

“I fear that sales may drop after we raise prices,” Mr. Sato said. “Japanese are the pickiest and toughest people in the world.”

In Japan, companies passed on only 48% of their higher costs to consumers in the final quarter of 2022, whereas in the U.S. companies passed on all their costs plus an additional 34%, according to estimates by Mitsubishi Research Institute economist Akihiro Morishige.

Mr. Morishige said customers tend to accept a one-time price increase caused by higher raw-material costs but are less forgiving if the reason is higher wages, because Japanese people assume wages stay flat.

Prime Minister

Fumio Kishida

is urging businesses to raise wages enough to compensate for inflation. He hopes to jump-start a favorable cycle in which workers earn more and spend more, encouraging businesses to invest more.

The Japanese Trade Union Confederation, which represents about seven million members, is seeking a wage increase of about 5% this year, its largest request since 1995.

Inflation reached 4% recently, but there are signs it has begun to fall back and the

Bank of Japan

expects the rate to fall below 2% later this year.

Bank of Japan officials have laid out their ideal scenario: Overall prices should grow 2%, a level that allows for monetary-policy flexibility, while wages should increase 3%, meaning workers are bringing home more in real terms every year. 

January was far from ideal in Japan. Real wages, reflecting the impact of inflation, fell 4.1%. 

Some economists say Japanese workers may finally be due for sustained wage increases because seniors and working-age women who helped fill labor gaps over the past decade are already tapped out.

Akira Igarashi, a production manager whose job includes mixing sake, said he didn’t have much desire for a raise.

A report this month by economic-forecasting firm Oxford Economics said the labor shortage will push up wages, especially for “younger workers who have started switching jobs more frequently in search of higher wages.” 

For now, Mr. Sato said his employees haven’t asked him for more money beyond the raises he decides on his own. 

“I don’t really have much desire for higher wages. Also, I understand the current conditions the company is in,” said Akira Igarashi, 37, a production manager whose job includes mixing sake in tall tanks with a long spatula.

“I don’t want this company to go under,” Mr. Igarashi said. “I want this company to expand further.”

Write to Megumi Fujikawa at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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