Japan's SMEs could be election losers as parties vow wage hikes

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan's political parties are promising to raise the minimum wage, a step that may win votes in Sunday's general election but could squeeze the small and midsize firms that form the backbone of the world's fourth-largest economy.

The wage-hike pledges particularly threaten small businesses, which account for two-thirds of jobs and over half of economic output, as they are already struggling to manage rising costs.

Prime Minister Shigeru Ishiba's Liberal Democratic Party - which polls show may struggle to retain its parliamentary majority - has pledged to raise the average minimum wage by 42% to 1,500 yen ($9.80) per hour by the end of the decade. The LDP had previously aimed to reach that goal by the mid-2030s.

The main opposition Constitutional Democratic Party of Japan and other parties have pledged to raise the minimum wage at least that high, without specifying a time frame.

The politicians have given scant details about how they would help firms offset the cost of a higher minimum wage, prompting Japan's main business federation, Keidanren, to sound the alarm this week.

"We must aim for challenging goals as a whole, but I feel uneasy about pushing something that is utterly impossible," lobby head Masakazu Tokura told a press conference, adding that the pace of wage hikes needed to hit the LDP's goal may be hard for many small companies to follow.

Inflation, a top election issue, is pinching both households and companies, especially smaller firms, with bankruptcies forecast to hit an 11-year high this year due to a combination of high prices and interest rates, and a labour shortage.

To help lower-income workers, major companies this year offered raises of 5.1%, the most in three decades, and the government decided to raise the hourly minimum wage by about 5% to 1,055 yen ($6.90).

"It's been a long time coming, but it is good to see that political parties are converging on minimum wages," said Koichi Kurosawa, secretary general of National Confederation of Trade Unions.

The union has called for an immediate hike to a 1,500 yen minimum wage.

Nearly half the workforce, or some 28 million people, earn less than 1,500 yen an hour, so the labour force would benefit from the higher minimum wage, according to the Japan Research Institute of Labour Movement.

The average annual salary in Japan is $39,000, well below the $49,000 average across OECD developed economies.

Bankruptcies jumped 18.6% in the six months to September from the same period last year to 4,990 cases, with a record number caused by inflation, according to credit research firm Teikoku Databank.

The LDP and other parties have said they will help companies offset costs with steps such as tax breaks or subsidies but have offered few details.

"It's already hard to cope with minimum wages of 1,000 yen," said Takeshi Nishimura, a manager at Big Yosan supermarket in Yokohama. "If it rises to 1,500 yen, that would make life even tougher for us small firms."

($1 = 152.4100 yen)

(Reporting by Tetsushi Kajimoto; Editing by John Geddie and William Mallard)