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Japan's Prime Minister Shinzo Abe seeks a 3% wage hike to stymie deflation. The call goes unheeded as Over Half of Japanese Firms Plan No Base Pay Rise This Year.

In a monthly Reuters Corporate Survey, just less than half [of Japanese companies] said they would raise pay and most in this group said the increase would be similar to last year’s level of about 2 percent.

In the past four years, major companies agreed to raise wages about 2 percent at annual wage negotiations with labor unions, a benchmark that sets the tone for talks across the country. The bulk of that - about 1.8 percent - comes automatically under Japan’s seniority-based employment system. Anything beyond that is a hike in “base pay.”

But many firms are wary of raising wages as it commits them to higher fixed personnel costs, so they prefer to pay one-off bonuses instead.

The survey was conducted between Jan 31 and Feb 14 on behalf of Reuters by Nikkei Research. Of some 240 companies that responded, 52 percent said they would not raise base pay. “It would leave a burden when the business environment turns for the worse,” wrote a manager at a transport equipment maker in the survey.

The remaining 48 percent said they intended to raise base pay, but 76 percent of this group said the rise would be the same as last year. About 14 percent saw pay rises exceeding last year, while 10 percent said they would undershoot last year’s increase.

In Japan, base salary accounts for the bulk of monthly wages. Rises in base pay had been virtually frozen since the early 2000s amid persistent deflation.

Basic Wage Hike Math

If 50% raise by 2% and 50% by none, the average is 1%. However, we do not know how those hikes are distributed.

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Is it the large companies or the small ones offering 0% hikes?

Here's the deal: If Japan hikes wages, the cost of its products will have to rise. If wages in the US rise and Japan's don't Japanese cars and other goods will be more competitive.

But that's looking at things in a vacuum. The US dollar has been falling. Japanese products already cost more.

I have a musical tribute

Nothin' From Nothin'

Such is the nature of competitive currency debasement.

For the situation in the US, please see How the Fed's Inflation Policies Crucify Workers in Pictures.

Mike "Mish" Shedlock