The coronavirus disease (COVID-19) outbreak in Tokyo
Office workers wearing protective masks, following the coronavirus disease (COVID-19) outbreak, work at a business building in Tokyo, Japan November 27, 2020. Reuters

Workers from Japan's largest group of trade unions have struck early agreements for hefty wage hikes with employers as cost of living pressures grow and businesses scramble to secure staff amid a labour crunch, union leaders said on Thursday.

Eighteen unions grouped under the umbrella of UA Zensen, representing 240,000 workers in the service, textiles and distribution sectors, announced early pay settlements in the closely-watched annual wage talks known as "shunto".

The 18 unions have agreed in full with their employers for average wage hikes of 5.28%, union officials told a news conference.

Though less than the 6% demanded by UA Zensen, the wage rise exceeds consumer inflation, which is running at a 41-year high of 4.2%, and was well above the 2.85% expected by economists polled by the Japan Economic Research Center (JERC), a private sector think-tank.

Prime Minister Fumio Kishida is pressuring companies to raise wages by 3% or more to beat rising living costs. The Bank of Japan also wants to see wage hikes strong enough to achieve sustainable demand-driven inflation.

The wage agreements with UA Zensen come almost a week before the March 15 announcements of shunto wage settlements from Japan's largest employers. Kishida's government has scheduled a joint meeting with unions and management for that day.

It was the first time that UA Zensen had reached an early pay settlement with employers.

Some other labour groups, including automaker unions, have already announced that their demands for higher pay have been met.

Toyota, the world's No. 1 automaker, announced it would accept a union demand for the biggest base pay hike in 20 years, though it did not give details.

Honda had agreed to union demands for a 5% pay rise, with the average monthly base salary gain of 12,500 yen, the biggest jump in more than 30 years.

Masaru Furukawa, general secretary of UA Zensen, hailed the early pay deal as "a big message towards the social issue of wage hikes."

But he went on to warn that "as price hikes continue, we must achieve a virtuous cycle of wage growth and prices to defeat deflation and protect unionists' livelihood."

The deal enabled supermarket chains like Aeon, Daiei and MaxValu to announce early pay settlements.

It remains to be seen whether the wave of wage hikes at big firms spreads through to small firms who often struggle to pass on rising costs to their bigger clients.

Wage growth has been stagnant since the 1990s, and resulted in the world's No. 3 economy sliding into nearly two decades of grinding deflation.

There was barely any hike in base pay in the decade before Japan's late prime minister Shinzo Abe came to power, pledging to reflate the economy and prevent a return to deflation.