Japan’s largest labor union group said on Thursday it would seek wage hikes of 5% or more in 2026, aiming for bumper pay raises for the fourth consecutive year to counter inflation despite headwinds from U.S. tariffs.
The 5% increase is the same as what Rengo, a 7 million member-strong union umbrella group, sought for annual labor negotiations this year, which resulted in an average wage hike of 5.25%, the biggest hike in 34 years.
Despite the big pay raises, real wage growth has remained mostly negative due to persistent inflation, prompting Rengo to continue pushing for sustained and broader wage increases.
Steady wage hikes are crucial for sustaining a consumption-led recovery — a prerequisite for the Bank of Japan to resume interest rate hikes.
Rengo’s latest 5% target includes more than 3% of base pay hikes — a key barometer of wage strength as they determine wage curves that provide the basis of bonuses, severance and pensions.
The group sets a separate, higher target for smaller firms, aiming for at least 6% to narrow the income gap with workers at large firms.
Tariff Squeeze
Economists say the arguments to raise pay in negotiations next year, which begin in earnest now, may not be as strong as they were this year, as higher U.S. tariffs squeeze profits at major Japanese exporters.
“Major exporters have been lowering export prices to absorb the tariff costs at the expense of smaller margins, and as they begin to raise prices, export volumes will start to fall and slow production,” Saisuke Sakai, chief Japan economist at Mizuho Research & Technologies.
“Major exporters, such as automakers, may inevitably turn cautious (in wage talks next year),” said Sakai, who predicts an average hike of 4.5-4.7% at Rengo member firms.
On the other hand, severe labor shortages are likely to exert pressure on companies to keep rewarding their employees with healthy pay hikes as competition for hiring and retaining workers.
“The economy itself isn’t in bad shape, and prices continue to remain high,” Daiwa Institute of Research economist Munehisa Tamura said. “Given that the labor shortage hasn’t changed either, we don’t see any factors that would lead to a lower rate of wage increases.”
(Reporting by Makiko Yamazaki; Editing by Sam Holmes)
