In May 2019, Prime Minister Shinzo Abe’s Council on Economic and Fiscal Policy recommended that the government draw up detailed measures to bring the nationwide average minimum wage up to ¥1,000 per hour as soon as possible. Concerns were raised due to the current unstable market, owing to factors such as the US-China trade war. If wages rise too quickly, SMEs may be adversely affected.

In 2015, the Abe administration said it would aim to raise the average minimum wage nationwide by 3 percent every year, although the government has no direct way to enact such changes, and by 2018 this average had increased to ¥874 an hour. If the rate by which wages are increasing is maintained, we can expect Japan’s minimum wage to hit ¥1,000 per hour in approximately 5 years.

According to Asahi Shimbun, some members of the panel said the goal should be pushed up, because it is important to expand consumption. Abe in turn instructed the labour ministry to report on what it plans to do in response to the panel’s recommendations.

Apart from the unstable economic situation, the recommendations come at a delicate time for other reasons as well.

Recently, the government liberalised immigration laws to make it easier for foreigners to work certain jobs in Japan, and there is a real fear that the imbalance in wages between urban and rural areas will cause many of these workers to gravitate to big cities for higher pay.

In addition, the consumption tax is scheduled to rise from 8 percent to 10 percent this fall, and the government is on guard over the fact that even the most minute of instability could trigger a recession similar to the one from the last tax hikes in 1997 and 2014.

The head of the Japan Chamber of Commerce and Industry, Akio Mimura, has said that the panel’s recommendation would have a seriously negative effect on small and midsize businesses. He believes the economy can tolerate annual wage increases of up to 1.4 percent.

According to online magazine, Buzzap, anyone earning ¥1,000 an hour would make, before taxes and social security payments, about ¥1.92 million a year, the equivalent of ¥160,000 a month, the figure for a living wage for a single-person household according to government data. It’s almost as if Mimura is saying that the 1.25 million small and midsize companies that belong to the organisation are unable to pay a living wage.

Japan’s government tends to do what the business community wants, in this case, keeping a lid on wage increases. However, this leads to a nasty catch-22 in which the government wants to increase consumption and investment, but the general population needs more disposable income to do so. Despite this, businesses are pressuring the government to keep minimum wages from rising. There is no real easy solution for this conundrum.