Kishida says wage hikes are the first step in realizing a strong cycle of growth and distribution that will eventually rebuild the Japanese middle class. Wages in the country have mostly remained stagnant over the past 30 years, while they have soared in the US and Europe.
The prime minister hopes this trend is reversed at this year's spring labor talks. He has been urging businesses to implement 3 percent raises.
"Distribution of the fruits of growth will create a virtuous economic cycle and lead to further growth," Kishida said at an annual gathering held by three major business organizations on January 5. "It is extremely important for companies to raise wages from the viewpoint of the future of the Japanese economy."
The country's largest labor organization has decided to demand 4 percent wage hikes. And business leaders seem to be on board with the trend. Tokura Masakazu, the chair of the Japan Business Federation, said on Tuesday that it is the duty of management to share profits with workers: "I will strongly encourage executives to act to help bring about a cycle of growth and distribution."
Analysts say wage hikes will inevitably cut into profit margins, as Japanese companies tend not to raise consumer prices even when the cost of raw materials increases. But Kobayashi Shunsuke, Chief Economist at Mizuho Securities, says the efforts of export companies can help shield Japanese businesses from the worst effects.
"Exporters should demand higher prices when they sell to booming economies," Kobayashi says. "That would represent a major paradigm shift since Japanese companies traditionally secure profits by reducing costs. But if exporters can raise prices, they can secure greater profits, lift wages, and eventually restore domestic consumer demand."
The wage hike is one of the biggest political issues facing the prime minister in the year ahead and will be seen as a litmus test for his economic leadership.