TOKYO: Japanese business leaders have promised Prime Minister Shinzo Abe to do their “utmost” to raise wages and allow suppliers to pass on higher costs, while also urging him to push through labour reforms, said a draft agreement between the government, business and labour groups.

Abe and business leaders, including Sadayuki Sakakibara, chairman of Toray Industries Inc and the Keidanren business lobby, are scheduled to announce the plan on Tuesday after a meeting in Tokyo, according to a draft seen by Reuters.

The agreement, the broad terms of which were first reported by the Yomiuri newspaper on Saturday, were hammered out in advance of the election landslide that returned Abe and his ruling coalition to power on Sunday. Wage growth is crucial to the success of the “Abenomics” agenda aimed at breaking a cycle of slow growth and deflation through monetary and fiscal stimulus and pledges of structural reform.

For a second year, Abe is pressuring major companies to raise base pay in the fiscal year from April. Some major unions have signalled that they will ask for a wage hike of over 2 per cent in base pay.

Abe’s Liberal Democratic Party and its junior partner won a two-thirds majority in a lower-house election that the prime minister called a referendum on his economic policies at a time when consumption has sputtered and business confidence faltered.

Adjusted for inflation, overall wages fell for the 16th straight month in October, down 2.8pc from the previous year.

BUSINESS MOOD FRAGILE: In addition, Japanese business confidence barely improved in the fourth quarter, according to a closely watched Bank of Japan survey, suggesting a slow climb from recession despite gains for stock prices and a steep fall in the yen.

On Tuesday, Abe, Sakakibara and representatives of smaller companies and a national labour group are set to meet at the prime minister’s residence.

A draft of the agreement ready to be announced after that meeting commits all parties to work together to “sustain a positive economic cycle” in Japan’s economy, the world’s third largest.

“To sustain a virtuous cycle between company profits, wage increase and consumption growth, and to ensure an end of deflation, companies need to use increased profits to raise wages and make investments,” the draft accord said.

“The business community will make the utmost efforts to raise wages,” it said.

The meeting will also include Nobuaki Koga, the president of the Japanese Trade Union Confederation, known as Rengo in Japan, a labour group that represents almost 7 million workers.—Reuters

Published in Dawn, December 16th, 2014