No longer merely catching up with inflation! Japan's auto workers' union pushes for even larger wage increases, potentially setting the tone for the 2027 spring wage negotiations.

Japan's largest auto industry union is seeking to go beyond merely keeping wage increases in line with inflation in next year's labor negotiations. The head of the organization said stronger wage growth is needed to help Japan secure enough skilled workers and meet the competitive challenge from China. Akihiro Kaneko, president of the Japan Automobile Workers' Unions (JAW), said in an interview on Monday: "We are discussing setting a higher standard than in previous years for the 2027 spring wage negotiations." Akihiro Kaneko said that in recent years JAW has won the strongest wage increases in decades, but the organization believes that if annual pay raises are mainly aimed at protecting workers from the rising cost of living, that is no longer enough to reverse the wage stagnation that has persisted for decades. Instead, he believes wages should increasingly reflect productivity gains and the value created by workers, thereby helping Japan narrow the gap with overseas competitors. Akihiro Kaneko said that due to the rapid rise of Chinese automakers, especially in the electric vehicle sector, the Japanese auto industry is facing an increasingly severe business environment. However, he noted that Japan should not engage China in a cost competition it is bound to struggle to win, but should instead focus on developing higher-value-added products by investing in talent. JAW has 12 affiliated unions representing a total of 780,000 workers, including employees of Toyota Motor Corp. Sponsored ADR (TM.US), Honda Motor Co., Ltd. Sponsored ADR (HMC.US), and auto parts manufacturers. In this year's labor negotiations, JAW member unions secured an average monthly pay increase of 4.81%, including a 3.58% raise in base pay. By comparison, a year earlier the overall wage increase was 4.94%, also including a 3.58% raise in base pay. Last year, Japan's core consumer inflation averaged 3.1%. For most of this year, Japan's core inflation remained below the Bank of Japan's 2% target, but it rose to 2.1% in September, exceeding the target for the first time in nine months. Japan's auto industry usually sets the overall tone for national wage negotiations. The industry is broadly linked to about 5.5 million jobs, and Japan's annual wage negotiations (shunto) usually get fully under way in the first few months of each year. Japan's largest labor organization, the Japanese Trade Union Confederation (Rengo), to which JAW also belongs, last week announced a more aggressive policy for next year's annual labor negotiations. The new policy sets a wage increase of around 6% as its core target while maintaining a minimum benchmark of at least 5%. Against the backdrop of intensifying inflationary pressure, if the annual wage negotiations represented by Japan's auto industry demand higher wage increases next year, it could trigger concerns about a "wage-inflation" spiral and push the Bank of Japan to tighten monetary policy at a faster pace. The core obstacle to a Bank of Japan rate hike has never been the inflation reading itself, but the sustainability of inflation. Since taking office, Kazuo Ueda has repeatedly made clear a framework: the 2% inflation target must be endogenous inflation supported by a "virtuous cycle between wages and prices," rather than cost-push inflation driven simply by higher prices of imported energy and raw materials. Therefore, shunto plays the role of a "starting gun": strong shunto results do not necessarily trigger an immediate rate hike, but they are a necessary precondition for one; conversely, if shunto results are weak or real wages remain negative, the central bank will be cautious even if inflation exceeds 2%because it worries that a rate hike could kill a virtuous cycle that has not yet taken shape.