By Tetsushi Kajimoto
TOKYO (Reuters) - Big Japanese companies look set to formally offer hefty pay hikes at annual wage talks with unions that wrap up on March 13, a move that will virtually cement the case for the central bank to phase out its unprecedented monetary easing in coming months.
Economists see the wage negotiations resulting in an average increase of around 3.9% in annual pay for union workers at major firms. That would be the biggest rise in 31 years and heighten expectations the BOJ would end negative interest rates by April.
The central bank has long contended that robust wage growth was a prerequisite for rolling back more than a decade of a radical monetary experiment that has aimed to lift Japan out of a protracted cycle of deflation and economic stagnation.
The annual "shunto" negotiations, long a defining feature of Japanese business, were closely watched in the high growth era, but became less important in the decades after the asset bubble burst in the early 1990s, as companies scrambled to shed the three excesses of debt, workers, plant and equipment.
Three decades on, wage negotiations are once again in the spotlight, as Prime Minister Fumio Kishida has made pay increases a top priority, as he looks to put an end to the years of meagre wage growth that have kept well behind the average for the OECD grouping of rich countries.
"This year, big firms will probably offer wage hikes of near 4%, which should prompt the BOJ to end negative rates in April," said Takeshi Minami, chief economist at Norinchukin Research Institute.
A fierce labour crunch in Japan has also driven home the message that companies need to increase pay, Minami said.
"Businesses can no longer stay afloat if they don't offer attractive pay to bring in young talent," he said.
While the wage talks directly impact workers at the biggest firms - a sliver of the workforce - they set the tone for the rest of the economy. Toyota Motor, for instance, has long been seen as a pacesetter.
Wages increases are increasingly important to attract workers as Japan is now grappling with higher prices, said Atsushi Takeda, chief economist at Itochu Economic Research Institute. That's also a big change from the past three decades when prices also budged little.
Japan's largest trade union confederation, Rengo, has demanded pay rises of 5.85% this year, topping 5% for the first time in 30 years.
Unions representing workers in industries ranging from automobiles, electronics, metals, heavy machinery as well as in the service sector have followed suit, demanding record pay hikes. Many of their demands are expected to be fully met.