TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe and his economic ministers piled pressure on companies on Thursday to raise wages to sustain growth as the economy climbs out of a recession triggered by a sales tax increase last year.
Wage growth is key to Abe's aim of generating a virtuous cycle of higher corporate profits, wages, consumption and investment to reflate the economy, and break a two-decade cycle of tepid growth and deflation.
In a policy speech before parliament, Abe expressed determination to have companies tap improved earnings for raising wages through spring labor-employer negotiations.
"To ensure the end of deflation, we put off a (second) sales tax hike to 10 percent by 18 months ... We aim for wage hikes through next spring and the year after next so that the warm breeze of economic recovery will reach every corner of Japan," Abe said.
Finance Minister Taro Aso and Economics Minister Akira Amari also urged companies to raise wages to promote a virtuous growth cycle. Amari went on to say that he expected the central bank to achieve a 2 percent inflation target while taking into account price and economic conditions.
In a sign that Abe's stimulus policies have gained some traction, a Reuters poll showed last month 42 percent of firms plan to raise wages at least as much as last year. Still, many are cautious with 44 percent undecided.
Last year, monthly average cash earnings rose 0.8 percent, posting the first gain in four years and the fastest growth in 17 years.
As broad price gains following April's sales tax rise outpace wage gains, however, real wages slid 2.5 percent, down for a third straight year, hurting households' purchasing power.
Abe said he aimed to achieve economic revival, fiscal consolidation and social security reform simultaneously.
Highlighting a heavy debt burden, Japan is set to miss budget-balancing pledges in coming years, according to government estimates submitted to a cabinet meeting on Thursday.
Even under rosy growth assumptions, Cabinet Office estimates predict a primary deficit - which excludes new bond sales and debt servicing - of 1.6 percent of gross domestic product (GDP) for 2020/21, and the baseline forecast is a deficit of 3.0 percent.
In an unusual move, Abe led his policy speech with agriculture reform, which is a symbol of his "Third Arrow" structural changes to fuel long-term growth.
Japan's politically powerful farming lobby on Monday accepted plans by Abe's ruling party to reform the agricultural sector.
Reporting by Tetsushi Kajimoto; Editing by Robert Birsel