Fast Retailing, Asia’s biggest fashion retailer and owner of fashion brand Uniqlo, will raise wages for its employees in Japan by 40 percent as inflation in the country rises at its fastest rate in decades.
The sharp jump in remuneration follows Prime Minister Fumio Kishida’s call to Japanese businesses to raise wages that have remained stagnant for decades, with companies struggling to pass on higher costs to consumers.
Economists expect other companies to follow but on a smaller scale, raising questions about whether Japan can create a virtuous cycle of rising wages, consumption and prices.
In a statement on Wednesday, Fast Retailing said the salary increase – which will take effect from March – is aimed at making the group’s remuneration system globally competitive. While many Japanese companies rely on seniority-based pay structures, retailers will evaluate employees based on their performance and ability to contribute to the business, he added.
As a result of the revision, the monthly salary for university graduates will rise to ¥300,000 ($2,270) from ¥255,000, while the salary for new store managers will rise from ¥290,000 to ¥390,000.
“For other employees, the company plans to increase their annual salary by 40 percent,” Fast Retailing said. “Next, the new remuneration of each employee will be decided according to globally harmonized class criteria.”
Fast Retailer will bear heavier personnel costs as the company faces a depreciating yen, higher material costs and the Covid-19 outbreak in China.
To cope with higher costs, the group increased the prices of its flagship products at Uniqlo stores in Japan last year, with fleece jackets rising from ¥1,990 to ¥2,990.
Fast Retailing has raised the average salary of most of its part-time employees by 20 percent in September. Combined with the latest increase for full-time employees, total personnel costs will rise about 15 percent from a year earlier, which the company says will be absorbed by increased productivity.
Japan’s core inflation, which excludes volatile fresh food prices, rose 3.7 percent in November, the fastest rate in nearly 41 years. That has increased expectations for traditional shunto wage negotiations in the spring, with the government calling on businesses to increase pay to compensate for higher prices.
In a sign of the changing times, the Japan Confederation of Trade Unions is seeking a 5 percent annual wage increase this year, or 3 percent of the base salary, the highest increase since 1995.
Goldman Sachs expects a wage bump of about 2.5 percent for spring negotiations, the highest since the late 1990s but short of the 3 percent wage growth the Bank of Japan has called for to support its 2 percent inflation target.
Noting that company profits are at record levels, Taro Saito, executive researcher at the NLI Research Institute, said other companies will increase wages to some extent.
“The wage increase shown by Fast Retailing is quite remarkable, but we will see significant wage increases in many companies,” Saito said.
Hisashi Yamada, vice chairman of the Japan Research Institute, said large companies with a global presence are struggling to get international talent with Japan’s average salary the lowest among G7 countries, according to OECD data.
“With a growing labor shortage, there is a sense of crisis spreading among management,” Yamada said.