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Japan firms promise Abe 'utmost efforts' to lift wages, urge reforms

Shinzo Abe, Japan's prime minister.
Kiyoshi Ota | Bloomberg | Getty Images

Japanese business leaders have promised Prime Minister Shinzo Abe to do their "utmost" to raise wages and allow suppliers to pass on higher costs, while also urging him to push through labor reforms, said a draft agreement between the government, business and labor groups.

Abe and business leaders, including Sadayuki Sakakibara, chairman of Toray Industries and the Keidanren business lobby, are scheduled to announce the plan on Tuesday after a meeting in Tokyo, according to a draft seen by Reuters.

The agreement, the broad terms of which were first reported by the Yomiuri newspaper on Saturday, were hammered out in advance of the election landslide that returned Abe and his ruling coalition to power on Sunday.

Wage growth is crucial to the success of the "Abenomics" agenda aimed at breaking a cycle of slow growth and deflation through monetary and fiscal stimulus and pledges of structural reform.

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For a second year, Abe is pressuring major companies to raise base pay in the fiscal year from April. Some major unions have signaled that they will ask for a wage hike of over 2 percent in base pay.

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Abe's Liberal Democratic Party and its junior partner won a two-thirds majority in a lower-house election that the prime minister called a referendum on his economic policies at a time when consumption has sputtered and business confidence faltered.

Adjusted for inflation, overall wages fell for the 16th straight month in October, down 2.8 percent from the previous year.

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In addition, Japanese business confidence barely improved in the fourth quarter, according to a closely watched Bank of Japan survey, suggesting a slow climb from recession despite gains for stock prices and a steep fall in the yen.

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On Tuesday, Abe, Sakakibara and representatives of smaller companies and a national labor group are set to meet at the prime minister's residence.

A draft of the agreement ready to be announced after that meeting commits all parties to work together to "sustain a positive economic cycle" in Japan's economy, the world's third largest.

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"To sustain a virtuous cycle between company profits, wage increase and consumption growth, and to ensure an end of deflation, companies need to use increased profits to raise wages and make investments," the draft accord said.

"The business community will make the utmost efforts to raise wages," it said.

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The meeting will also include Nobuaki Koga, the president of the Japanese Trade Union Confederation, known as Rengo in Japan, a labor group that represents almost 7 million workers.

Abe held a similar meeting with business and labor leaders last year. In spring wage negotiations, some larger firms agreed to wage increases. Others, like Sony, have moved to implement more flexible pay arrangements that could cut average pay.

To improve profits at smaller firms and encourage them to raise wages, companies will pledge to allow suppliers to pass on higher input costs, caused in part by the weaker yen.

Business leaders also renewed a call for the Abe administration to press ahead with labor reforms without detailing specific steps.

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The draft urges changes that would make it easier to pay workers for performance rather than based on seniority and to improve productivity in the service sector, which employs seven in 10 workers in Japan.

In June, Abe announced limited labor market reforms that stopped short of changes sought by foreign investors. The biggest change eliminated compulsory overtime for workers earning the equivalent of $100,000 per year.