Wage growth a focus of this year's honebuto no hōshin

Japan Times

13-06-2025

Japan's efforts to achieve wage growth are reflected in this year's honebuto no hōshin — a document that sets economic and fiscal management guidelines for the government.
The Cabinet of Prime Minister Shigeru Ishiba approved the document on Friday.
'My impression is that this year's honebuto indicates an even stronger commitment to raising wages,' said Saisuke Sakai, chief economist at Mizuho Research & Technologies, adding that it presents some bold targets.
According to the honebuto, the government will work to raise the average minimum hourly wage to ¥1,500 ($10.50) by the end of the decade, far earlier than the mid-2030s target set in the last honebuto.
The country also aims to achieve real wage growth of about 1% annually.
Sakai said the strong emphasis on wage increases likely stems from a sense of urgency about the fact that real wages have been falling in recent years.
Salary increases of more than 5% have been negotiated for two consecutive years in the spring wage offensive, but inflation has still outpaced pay increases overall.
Real wages in Japan declined 0.3% last year, contracted 2.5% in 2023 and dipped 1.0% in 2022. So far this year, wages have fallen for four consecutive months on a real basis. In April, inflation-adjusted wages were down 1.8%, according to data from the labor ministry released last week.
Some economists have pointed out that achieving real wage growth and a ¥1,500 minimum wage will be challenging.
'Since the honebuto guidelines outline the government's intended direction and message, I think it is setting somewhat ambitious targets,' Sakai said.
Whether the target can actually be achieved remains a question, but the government is on the right track in prioritizing real wage growth, he added.
The new honebuto also signals the government's resistance to a consumption tax cut, a policy option recently gaining traction among a number of politicians ahead of the Upper House elections in July.
'Under the basic principle of 'wage hikes over tax cuts,' we will realize an increase in disposable income through wage hikes, not through tax cuts based on the current income levels,' the honebuto document states.
All major opposition parties are arguing for a consumption tax cut to counter high inflation, which has largely been driven by rising food prices.
While some in the ruling parties have backed a tax cut, Ishiba, who also heads the Liberal Democratic Party, is taking a cautious stance due to the impact of a cut on Japan's fiscal health.
Lowering the consumption tax rates — currently set at 10% for most items and 8% for food products — has been taboo in Japan given that the country faces a high level of national debt, now around 250% of gross domestic product. Consumption tax revenue is seen as critical to covering social welfare costs.
'By prioritizing fiscal soundness rather than tax cuts, the LDP probably wants to differentiate itself from opposition parties," Sakai said, adding that the LDP seems to want to convince the public that it is the responsible party.
The government also appears to be sending a message to the market that it doesn't intend to implement a consumption tax cut that would raise concerns about Japan's fiscal health given a recent rout in the long end of the bond market.
Yields on 30-year and 40-year Japanese government bonds climbed to record levels last month as demand among traditional domestic buyers, such as life insurers, diminished.
The year's honebuto remarks on balancing supply and demand for JGBs, saying the government will need to take action to facilitate domestic holdings of such bonds to prevent a spike in long-term rates.
The honebuto has been issued most years since 2001. The first honebuto was introduced under the administration of then-Prime Minister Junichiro Koizumi in an effort to gain more control over the drafting of the budget, which has historically been led by the bureaucracy.