TOKYO – Toyota Motor agreed to give factory workers their biggest pay increase in 25 years on March 13, heightening expectations that bumper pay rises will give the central bank leeway to make a key policy shift next week.

Toyota, Panasonic, Nissan and a number of other of Japan Inc’s biggest names said they had agreed to fully meet union demands for pay increases at annual wage negotiations that wrap up on March 13.

The annual talks, long a defining feature of the usually collaborative relationship between Japanese management and labour, are being closely watched this year as the pay increases are expected to help clear the way for the central bank to end its years-long policy of negative interest rates as early as next week.

Toyota, the world’s biggest carmaker and traditionally a bellwether of the annual talks, said it agreed to the demands of monthly pay increases of as much as 28,440 yen (S$256) and record bonus payments.

“We’re seeing strong momentum for wage hikes,” Chief Cabinet Secretary Yoshimasa Hayashi told reporters. “It’s important that the strong wage hike momentum will spread to small and mid-sized firms.”

Steelmaker Nippon Steel also said it had agreed to union pay requests in full.

Economists see substantial wage increases as a prerequisite for the Bank of Japan to declare that its long-held goals of sustainable wage growth and stable prices are in sight and usher in an end to negative rates in place since 2016.

The bank, which has stuck with massive stimulus and ultra-low rates for years longer than other developed countries in an attempt to jump-start a moribund economy, is set to hold its next policy setting meeting on March 18 and 19.

Workers at major firms have asked for annual increases of 5.85 per cent, topping the 5 per cent mark for the first time in 30 years, according to Japan’s biggest trade union grouping, Rengo. As a result, some analysts expect this year’s wage increases at 5 per cent or more, from just under 4 per cent previously. That would be the biggest increase in some 31 years.

Unions across industries, including automotive, electronics, metals, heavy machinery and the service sector, have all demanded hefty pay hikes. REUTERS