Undeterred by high tariffs, Japan's largest labor union still demands a 5% wage increase, striving for a significant pay raise for the fourth consecutive year!

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Japan’s largest labor union organization, Rengo, announced on Thursday that it will seek a wage increase of 5% or more in the 2026 labor negotiations. Despite pressure on Japanese exporters from U.S. tariff policies, this labor union federation, with 7 million members, is striving for a substantial wage increase for the fourth consecutive year.

Rengo’s goal of a 5% pay raise next year matches this year’s target. This year ultimately resulted in an average increase of 5.25%, the biggest in 34 years. This target includes a basic wage increase of more than 3%, a key indicator of wage growth because it determines the base for bonuses, severance pay, and pensions.

Despite significant wage increases, persistent inflation has kept real wage growth negative for most of the time, prompting Rengo to continue pushing for sustained and broader salary hikes. For small and medium-sized businesses, Rengo has set an even higher target, seeking at least a 6% raise to close the income gap with large corporation employees.

Stable wage growth is essential for sustaining a consumption-led economic recovery, which is also a prerequisite for the Bank of Japan’s return to rate hikes.

Tariff Impact Tests Wage Outlook

Economists point out that the justification for next year’s wage negotiations may be weaker than this year, as higher U.S. tariffs are squeezing profits of Japan’s main exporters.

Saisuke Sakai, chief Japan economist at Mizuho Research & Technologies, said:

Major exporters have been lowering export prices, sacrificing profit margins to absorb tariff costs. When they start to raise prices, export volume will decline and slow production. Major exporters such as automakers are likely to be cautious in next year’s wage negotiations.

Sakai expects the average wage increase at Rengo member companies to be between 4.5% and 4.7%.

Labor Shortage Supports Wage Increases

On the other hand, a severe labor shortage may force companies to continue offering substantial wage returns to employees, as competition to recruit and retain workers remains fierce.

Munehisa Tamura, an economist at Daiwa Institute of Research, noted that the economy itself is not bad, and prices remain high. Given that the labor shortage has not changed, we do not see any factors that would reduce the rate of wage growth.

This year’s wage negotiations produced an average wage increase of 5.25%. Rengo’s new 5% target shows its determination to sustain this momentum and meet the challenge of inflation eroding purchasing power. Whether continued wage growth can be achieved will directly affect Japan’s consumption recovery and the central bank’s monetary policy path.

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