Uniqlo owner to raise wages in Japan by 40% as inflation climbs

Fast Retailing, Asia’s largest clothing retailer and owner of the Uniqlo fashion brand, will raise employee wages in Japan by as much as 40 per cent as inflation in the country rises at its fastest pace in decades.

The sharp jump in remuneration follows Prime Minister Fumio Kishida’s calls on Japanese businesses to raise wages that have remained stagnant for decades, with companies struggling to transfer higher costs to consumers.

Economists expect other companies to follow suit but at a far smaller scale, raising questions on whether Japan can create a virtuous cycle of rising wages, rising consumption and rising prices.

In a statement on Wednesday, Fast Retailing said the pay rise — set to take effect from March — was aimed at making the group’s remuneration system globally competitive. While many Japanese firms rely on a seniority-based pay structure, the company would evaluate employees based on their performance and ability to contribute to the business, it added.

As a result of the revision, starting monthly pay for university graduates will increase to ¥300,000 ($2,270) from ¥255,000, while salaries for new store managers will rise from ¥290,000 to ¥390,000.

“For other employees, the company plans to increase annual salaries by as much as 40 per cent,” Fast Retailing said. “Going forward, the new remuneration of each employee will be decided by globally-aligned grade criteria.”

Fast Retailing will shoulder heavier personnel costs as the company faces headwinds from the yen’s depreciation, higher material costs and a Covid-19 outbreak in China.

To address the higher costs, the group hiked the prices of flagship products at Uniqlo stores in Japan last year, with its fleece jackets jumping from ¥1,990 to ¥2,990.

Fast Retailing had already raised wages by an average 20 per cent for most of its part-time employees in September. Combined with the latest increase for full-time employees, total personnel costs would rise about 15 per cent from a year earlier, which the company said would be absorbed by boosting productivity.

Japan’s core inflation, which does not include volatile fresh food prices, rose by 3.7 per cent in November, its fastest pace in nearly 41 years. That has increased expectations on the traditional “shunto” wage negotiations in the spring, with the government calling on businesses to increase pay to compensate for higher prices.

In a sign of changing times, the Japanese Trade Union Confederation is seeking a 5 per cent year-on-year increase in wages this year, or 3 per cent in terms of base pay, which would be the highest rise since 1995.

Goldman Sachs expects a wage hike of about 2.5 per cent for the spring negotiations, the highest since the late 1990s but short of the 3 per cent wage growth the Bank of Japan has called for to sustain its 2 per cent inflation target.

Noting that corporate profits are at record levels, Taro Saito, executive research fellow at NLI Research Institute, said other companies were likely to increase wages to some extent.

“The wage increase shown by Fast Retailing is quite incredible, but we will see significant wage increases at many companies,” said Saito.

Hisashi Yamada, vice-chair of the Japan Research Institute, said large companies with a global presence were struggling to acquire international talent with Japan’s average pay at the lowest among G7 countries, according to OECD data.

“With an increasingly fierce labour shortage, there is a widespread sense of crisis among the management,” said Yamada.