Japan's largest automotive industry union federation is seeking to go beyond merely demanding wage increases that keep pace with inflation in next year's labor negotiations. The organization's leader said stronger wage growth is needed to help Japan secure enough skilled workers and meet the competitive challenge posed by China.
Akihiro Kaneko, president of the Japan Automobile Workers' Unions Confederation (JAW), said in an interview on Monday: "We are discussing setting a higher standard for the 2027 spring wage negotiations than in previous years."
Akihiro Kaneko said JAW has secured the strongest wage increases in decades in recent years, but the organization believes that if annual pay raises focus mainly on protecting workers from rising living costs, that is no longer enough to reverse the wage stagnation that has persisted for decades.
Instead, he argued that wages should increasingly reflect productivity gains and the value workers create, thereby helping Japan narrow the gap with overseas competitors.
Akihiro Kaneko said Japan's auto industry is facing an increasingly severe business environment due to the rapid rise of Chinese automakers, especially in electric vehicles. However, he noted that Japan should not engage in a cost competition with China that it is destined to struggle to win, but should instead focus on developing higher-value-added products by investing in talent.
JAW has 12 affiliated unions representing 780,000 workers, including employees of Toyota Motor Corp (NYSE: TM) and Honda Motor Co Ltd (NYSE: HMC), as well as workers at auto parts manufacturers.
In this year's labor negotiations, JAW member unions won an average monthly pay increase of 4.81%, including a 3.58% rise in base wages. By comparison, the overall wage increase a year earlier was 4.94%, with base wages also rising 3.58%.
Last year, Japan's core consumer inflation averaged 3.1%. For most of this year, Japan's core inflation remained below the Bank of Japan's 2% target, but it rose to 2.1% in September, exceeding the target for the first time in nine months.
Japan's auto industry typically sets the overall tone for national wage negotiations. The sector is broadly linked to employment for about 5.5 million people, and Japan's annual wage negotiations, known as shunto, usually get fully underway in the first few months of each year.
Japan's largest labor organization, the Japanese Trade Union Confederation (Rengo), announced last week a more aggressive policy for next year's annual labor negotiations, and JAW is also affiliated with it. The new policy sets a wage increase of around 6% as a core target while maintaining a minimum benchmark of at least 5%.
Against the backdrop of intensifying inflationary pressure, if annual wage negotiations led by Japan's auto industry demand higher pay increases next year, it could trigger concerns about a wage-inflation spiral and push the Bank of Japan to tighten monetary policy at a faster pace.
The core obstacle to a Bank of Japan rate hike has never been the inflation reading itself, but the sustainability of inflation. Since taking office, Kazuo Ueda has repeatedly made one framework clear: the 2% inflation target must be endogenous inflation supported by a virtuous wage-price cycle, rather than purely cost-push inflation driven by higher import prices for energy and raw materials.
Therefore, shunto plays the role of a starting gun: a strong shunto outcome does not necessarily trigger an immediate rate hike, but it is a necessary precondition for one. Conversely, if the shunto outcome is weak or real wages remain negative, the central bank will hesitate even if inflation exceeds 2%, because it fears that raising rates could kill a virtuous cycle that has not yet taken shape.
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