The Japan Business Federation, the country's most powerful business lobby, on Tuesday urged its member companies to offer larger pay hikes than last year, effectively demanding wage increases of at least 4 percent amid inflation.

"To companies, we would like to call for active consideration and implementation of wage increases with a stronger passion and resolve than in 2023," Keidanren said in its guideline for this year's spring wage negotiations, announced the same day.

The move comes after Japan's major companies raised their wages by 3.99 percent on average last year, the biggest increase in 31 years, amid soaring prices of everything from food to energy on the back of Russia's war in Ukraine and a weaker yen.

Tetsuji Ohashi, chairman of the Japan Business Federation's committee on management and labor policy, speaks at a press conference in Tokyo on Jan. 16, 2024. (Kyodo)

But Japan's pace of salary growth has failed to match price rises, with real wages in November falling 3.0 percent from a year earlier for the 20th consecutive month of decline.

"The future of the Japanese economy depends on whether we can continue to accelerate the momentum of structural wage increases that started last year," Masakazu Tokura, head of the lobby, said in the preface to the guideline, highlighting pay hike efforts by smaller enterprises, which hire nearly 70 percent of workers in the country.

With companies having to cope with elevated prices and salary rises at the same time, Keidanren will call on the government and the Bank of Japan for policies to bring inflation to a "moderate level" of around 2 percent, Tokura said.

Tetsuji Ohashi, chairman of construction machinery manufacturer Komatsu Ltd. who oversaw the drafting of the guideline, told a press conference that "improvement in productivity" is important for the Japanese economy to grow and to achieve "continual" pay hikes.

The guideline did not set any specific numerical target for the pay hikes and left room for each company to decide on how to realize the steps. But it pointed out that base pay increases are "one of the most effective options" to fight against rising prices.

It also called on big corporations that make up supply chains to review trade terms with small and medium-sized companies so they can secure funds for pay increases.

In a major turnabout from last year, Keidanren showed understanding of this year's pay hike target set by Rengo, the biggest labor union in the country, which has said it aims to achieve wage increases of 5 percent or more.

When the union set a wage hike goal of "around 5 percent" last year, Keidanren brushed it off as "out of touch" with the reality of the situation.

This year's so-called shunto spring wage negotiations will effectively kick off next Wednesday, when a forum between management and labor unions at major corporations is scheduled to be held.

Related coverage:

Japan business chiefs vow to push for higher pay as PM pressures

Over 70% of firms expect Japan economy to keep growing in 2024