TOKYO (Reuters), – Fumio, Japan’s Prime Minister called on unions and business lobbies Wednesday to unite to “boldly turn around” the downward trend in wages. This is as government seeks to establish a “new capitalism”.

Japanese businesses, worried about losing market share and customers as Japan struggles with deflation over the past few years, have been cautious about increasing wages. Many have instead resorted to tightening their belts to reduce costs and left employees with a stagnant pay scale for many decades.

Kishida, who was elected to office in October 2011, has encouraged Japanese companies whose profits are back to pre-pandemic levels to increase their wages by at least 3%. This is to create a cycle that promotes growth and distributes wealth.

We will address wealth distribution to the middle class. “We will create a virtuous circle by distributing growth’s fruit, which leads to next growth,” Kishida said at Rengo’s New Year gathering.

“I expect wage increases suitable to a new era of capitalism to be realized at the spring labour negotiations.”

Kishida was the first prime minister to visit Rengo’s new year event in nine years.

Kishida had earlier urged three Japanese business lobby groups, including Japan’s biggest Keidanren to pressurize the government into taking an aggressive stance towards wage increases, Kyodo news agency reported.

According to the news agency, Kishida stated that raising wages is “extremely important”, as strong recovery from COVID-19 would need wealth distribution to middle class.

Kishida stated that “now is the right time to move the phase away form the contractionary cycle due to deflation toward a virtuous circle of growth and wealth allocation.”

To encourage wage growth, the government offered tax reliefs in the November economic package.

A significant wage increase may seem like a daunting task, considering the fact that many top Japanese businesses and unions have reached agreements on wage increases of only around 2.2% annually in recent years. Leading Japanese firms saw their wages drop by 2% last year as the pandemic caused corporate profits to plummet.