Japan govt plans to raise minimum wage in stimulus package to revive economy

Tokyo, November 23

Japan’s government plans to raise the minimum wage and introduce other steps to revitalise the economy, but the draft of stimulus measures seen by Reuters today appeared to break no new ground on reforms that analysts say are needed to end decades of stagnation.

Prime Minister Shinzo Abe’s government will also offer some financial support to people living off their pensions to bolster consumer spending, a copy of the draft obtained by Reuters showed.

Citing unnamed sources, the Nikkei newspaper said today that the government is planning to raise the minimum wage by three per cent. But the draft didn’t provide any specifics and analysts say the government will need to do more to foster durable growth.

Raising wages is an urgent task for policymakers as Tokyo is keen to ramp up consumer spending, which is seen as crucial to boosting domestic demand and pulling the economy out of 15 years of deflation.

However, some economists remained sceptical of the plans because they do not do enough to address Japan’s rigid labour market and low worker productivity.

“This sounds like short-term stimulus, but Japan needs structural reforms,” said Marcel Thieliant, Japan economist at Capital Economics in Singapore.

The economy has fallen into recession twice since Abe took office in late 2012, and his government is under pressure to show that it can improve the economy with a package of steps due this week.

The national average of Japan’s minimum wage was at 780 yen ($6.33) per hour in the last fiscal year, so a three per cent increase would still not buy more than a bowl of ramen noodles — an illustration of the daunting task policymakers face in boosting consumption and growth.

The minimum wage has been rising for past few years, but Japan’s rates are only slightly above average for OECD members, and labour unions have argued for bigger increases.