Japan’s “Price Revolution” Sweeps In: Major Companies Raise Wages by Over 5% for Two Consecutive Years, Ending Thirty Years of Deflation

At Toyota’s headquarters in Toyota City, union representatives and management have just concluded negotiations. On the table lies a document showing an average base wage increase of 5.8%, the highest in twenty-five years. What’s more significant is the additional clause: linking future wage growth to the consumer price index (CPI), a mechanism not seen since the 1990s bubble economy.

On February 3rd, the results of Japan’s annual “spring wage offensive” were successively released. Toyota, often regarded as the benchmark, led with a 5.8% wage increase, followed by Panasonic at 5.6%, and Hitachi at 5.2%. This marks the second consecutive year that major Japanese companies have raised wages by over 5%. More crucially, over 60% of small and medium-sized enterprises have indicated they will follow suit with pay raises. Japanese Chief Cabinet Secretary Yoshimasa Hayashi stated that “this wage-price virtuous cycle has taken shape,” effectively declaring an end to the thirty-year deflationary mindset.

This shift originates from multiple forces. First, Japan’s core CPI has remained above 3% for eighteen consecutive months, with rising living costs forcing workers to demand higher wages. Second, a severe labor shortage—Japan’s active job openings-to-applicants ratio stands at 1.3:1—has given unions greater bargaining power. Most importantly, the government’s “unprecedented” tax incentives have been introduced: companies that raise wages by over 4% can receive tax deductions of up to 40% on the increased portion.

The financial markets are reassessing Japan’s assets. The yen has appreciated 2.3% against the dollar in the past week, while the Nikkei 225 index has risen 4.1%, approaching its all-time high. International hedge funds have increased their allocations to Japanese stocks by $12 billion, with Goldman Sachs analysts noting that “Japan is transitioning from a deflationary trading target to a reflationary trading target.” However, risks persist: if wage growth fails to keep up with inflation, it could squeeze corporate profits and reduce Japan’s export competitiveness. Already, Mizuho Financial Group’s survey shows that 45% of manufacturers are considering moving production lines overseas.