Japanese employers will fail in the next fiscal year to heed Prime Minister Shinzo Abe’s goal of wage increases that outpace inflation, highlighting risks that the nation’s recovery will stall, surveys of economists show.

Labour cash earnings, the benchmark for wages, will increase 0.6% in the year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News. Consumer prices will climb five times faster, increasing 3%, as Japan raises a sales tax for the first time since 1997, a separate Bloomberg survey shows.

The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless Abe can convince companies to boost wages to cushion the blow. At stake is sustaining a recovery in the world’s third-biggest economy, set to expand this year at the fastest pace since 2010 as Abe tries to drive an exit from 15 years of deflation.

“Wage increases will be slower than the rise in prices at least until 2015, dealing a blow to Prime Minister Abe,” said Yoshimasa Maruyama, chief economist at Itochu Corp in Tokyo. “It will take a while for companies to change their mind-set, which is still mired in deflation.”

In an interview in Tokyo this month, Abe urged companies to increase wages faster than gains in the cost of living. “For us to escape deflation it is extremely important that wages rise,” Abe said December 6.

Cash earnings rose 0.5% in November from a year earlier, breaking four months of decline, government data showed last week. Wages excluding bonuses and overtime were unchanged, ending a 17th-month slide. Consumer prices rose 1.5%, the most since 2008.

The Topix index of stocks is up 50% this year and corporate profits have soared as Abe’s reflationary policies bolster confidence and drive down the yen.

The prime minister has pressed Japan to pass some of the windfall to workers through higher base pay, in meetings with business and union leaders since September. The three sides said in a joint statement this month that increased profits should be linked to wages. Japan can’t wait one or two years for salary gains, which are needed sooner for the economy to enter a virtuous cycle of rising profits, wages and growth, Deputy Economy Minister Yasutoshi Nishimura said.  Honda Motor Co Executive Vice President Tetsuo Iwamura said on December 13 the automaker will set pay based on reaching profitability targets, rather than government directives on how fast to increase compensation.

Any increase in wages depends on a pick-up in demand, not just pleas by Abe for companies to do their part for economic recovery, said Kaoru Yosano, a former finance minister, in an interview in October.

Negotiations set to take place around March between trade unions and management known as “shunto” — or the spring wage offensive — will set the direction of base pay for the coming fiscal year.

Japan’s jobless rate held at 4% in November, while there was one job for every applicant - the most since 2007 — in a sign that a tighter labour market may encourage higher pay. The economy is set to grow 1.6% next year, compared with an estimated 1.8% in 2013, according to Bloomberg News economist polls.

Japan’s sales tax will rise to 8% from 5% in April, helping government efforts to rein in the world’s heaviest debt burden, while dealing a blow to growth. The economy may shrink an annualised 3.9% in the second quarter, before returning to growth, according to a Bloomberg survey.

Consumer spending will fall 0.5% in the next fiscal year, knocking 0.3 percentage point off GDP growth, according to the survey of 16 economists.


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