Japan’s Businesses to Keep Wages Unchanged or Lower Over External Risks

A recent Reuters poll reveals that nearly 80% of Japanese companies are considering holding wages steady or even cutting them lower in the wake of external economic risks like trade tensions and the recent coronavirus outbreak. This move is likely to drive further weakness in Japan’s economy which is facing a high likelihood of slipping into recession.

According to the survey, 58% of companies are planning no changes in base pay, which accounts for most of the wages received by employees and also forms the basis for bonuses. With no increase in pay, Japan’s target of achieving 2% inflation is expected to become more challenging.

Companies are holding pays constant or even considering reduction on account of the recent coronavirus outbreak which is expected to have a significant impact on their profits in the upcoming fiscal year. Japanese businesses are also planning to switch to a merit-based model for gauging wage hikes instead of the conventional blanket pay homes driven by seniority, in a bid to improve competitiveness among employees.