Rengo, the national labor union, holds a press conference in Tokyo on March 23.
Prominent companies in major sectors, such as automobiles and electronics, have all simultaneously announced their responses to the spring wage negotiations. Many companies, including Toyota Motor Corporation, have fully complied with union demands for higher wages.
Rising crude oil prices are a concern. They could negatively impact corporate performance as inflation potentially cools the domestic economy. In this context, management's stance of continuing to raise wages is welcome. However, this trend should also extend to small and medium-sized enterprises (SMEs). That is where labor-management negotiations are expected to intensify in this sector in the future.
Spring negotiation wage increases of over 5% have been achieved for two consecutive years, namely in 2024 and 2025.
Even so, real wages, adjusted for price fluctuations, never once turned positive in 2025.
Thanks in part to the government's measures to combat rising prices, such as a decrease in the gasoline tax, the volume of gasoline sales increased in January of this year for the first time in 13 months. However, the escalating tensions related to the Iran situation could potentially dampen the upbeat mood.
If the conflict drags on and crude oil prices remain high, real wages are likely to fall again. There is also concern that the economy could deteriorate into stagflation, a state in which inflation and economic stagnation occur simultaneously.
Focus on SMEs
For large companies with the capacity to raise wages to continue offering high levels of wage hikes is crucial for realizing a virtuous economic cycle. Such an economy, which would prevent an economic downturn, needs to be driven by personal consumption.
The problem lies with small- and medium-sized enterprises, which collectively account for 70% of employment in Japan. Seven out of 10 SMEs that are planning to raise wages are implementing "defensive wage increases." Those are increases that are not matched by improved business performance.
Some surveys indicate that nearly 80% of these smaller businesses feel burdened by the continued need for wage increases. With rising crude oil prices expected to increase costs, it is essential that small and medium-sized enterprises appropriately pass on their increased costs in their transaction prices.
Pass On the Burden
The Act to amend the Subcontract Act and the Act on the Promotion of Subcontracting Small and Medium-sized Enterprises prohibits the unilateral determination of transaction prices. It came into effect this January and should affect business practices from 2026.
Large corporations need to review their business practices and accept cost increases. If their transaction partners are unable to raise wages and face labor shortages, or if their poor performance leads to a stagnation of capital investment, supply chains could be weakened. The large corporations and other entities that place the orders could then find themselves in deepening trouble.
For small and medium-sized enterprises, cost acceptance is viewed as a necessary investment for sustainable growth. Tensions are escalating in Iran, and as a consequence, there are concerns about the economic outlook. In this environment, it is more important than ever to understand the symbiotic relationship with society as a whole and to share the burden.
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Author: Editorial Board, The Sankei Shimbun
