Big Japan firms plan bigger pay hikes but smaller firms expected to lag

TOKYO (Reuters) - Japanese blue-chip firms announced wage hikes on Wednesday that topped increases last year, but overall pay raises across corporate Japan are not expected to offset higher costs of living for workers or be enough to drive a sustainable economic recovery.

Major exporters like Toyota Motor Corp <7203.T> were responding for a second year to public calls from Prime Minister Shinzo Abe's government for help in generating a virtuous cycle of higher profits, wages and prices to decisively end two decades of deflation and stop-start growth.

Thanks to a weaker yen and Abe's stimulus policies, blue-chip have made huge profits and boast record cash reserves, and the raises will likely allow pay to catch up with the inflation spawned by the easy money of "Abenomics" in the coming fiscal year, economists say.

But import costs have risen on the back of a weaker yen and many importers as well as smaller firms cannot afford to pass on much of their costs to workers.

"The spread of wage hikes will be largely limited to big firms," said Hisashi Yamada, chief economist at Japan Research Institute.

"A weak yen does more harm than good to small firms and those based in areas outside of Tokyo. And last year?s sales tax hike is still weighing on private consumption, forcing small firms to cut their selling prices."

Toyota said it plans to raise workers' base salary by 4,000 yen ($33) a month, up from last year's increase of 2,700 yen and the biggest hike in over a decade, although it fell short of union demands for 6,000 yen.

The offer amounts to an overall raise of 3.2 percent when combined with an automatic increases that vary depending on a worker's length of service - typical in Japanese companies - of 7,300 yen.

Electronics giant Panasonic Corp <6752.T> offered a 3,000 yen base-pay hike and automaker Nissan Motor Co <7201.T> 5,000 yen.

Japan's top government spokesman, Yoshihide Suga, said he expects the bigger pay hikes seen at auto and electronics makers will spread to other sectors.

Last year, major firms raised wages an average 2.19 percent, a 15-year high, including seniority gains. Economists expect the increase to accelerate to around 2.5 percent this year.

That would translate into a rise of about 1 percent in wage-earners' total cash earnings, including overtime pay and bonuses, across all firms, including regular and part-time workers, economists reckon. Cash earnings rose 0.8 percent last year.

But in the wake of last April's sales tax hike to 8 percent from 5 percent, inflation-adjusted wages fell 2.5 percent in 2014. Economists expect real wages to turn positive in the fiscal year starting next month, partly as tumbling crude oil prices push consumer inflation to a halt.

A Reuters survey showed that most Japanese firms plan to raise salaries by at least the same degree as last year, but even two years of wage hikes will not be enough to compensate workers for increases in the cost of living.

Data also shows that Japanese workers are taking home the smallest share of corporate income in two decades as companies hoard record levels of cash.

The growing ranks of contract and other "non-regular" workers take home far less than the shrinking number of regular salaried employees, underscoring the challenge to spreading the trickle-down benefits of Abenomics.

(Additional reporting by Mari Saito, Maki Shiraki, Yoshiyasu Shida and Kaori Kaneko Editing by William Mallard and Edwina Gibbs)