On Wednesday, Toyota Motor, Japan’s largest automaker, reached an agreement to provide its factory workers with their most substantial pay raise in 25 years. This development has heightened anticipations that substantial salary increases across industries will provide the central bank with flexibility to enact a significant policy adjustment next week. Other major players in Japan Inc., including Panasonic, Nippon Steel, and Nissan, have also confirmed meeting union demands for wage hikes during their annual negotiations.
Japan’s central bank meets on March 18-19 to discuss its future monetary policy. Some economists expect it to finally announce an end to years of massive stimulus and ultra-low rates. Many see substantial wage gains feeding into consumer demand as a prerequisite for the BOJ to shift to normalization.
Toyota is the most high-profile Japanese firm to agree on a pay rise for its employees this year, and its decision will set an important precedent for the rest of the country’s employers. Toyota is the biggest manufacturer in the world and employs more than 300,000 people. The firm’s automotive division makes sedans, minivans, 2box vehicles, and trucks for domestic and international markets. Its industrial division provides various industries with electrical and electronics equipment, auto parts, chemicals, materials, and other products.
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The company’s latest move comes as it grapples with several scandals. Last month, Toyota suspended shipments of some models after discovering irregularities in certification tests for diesel engines developed by its affiliate Toyota Industries (6201.T). Its small-car unit Daihatsu continued to suspend production through January due to misconduct related to rigged collision safety tests. However, it has begun a gradual resumption of operations this month.
Toyota’s production system glitch threw the country into chaos as it scrambled to restore output at factories nationwide, and businesses and government offices reported receiving harassing phone calls. The incident also highlighted the difficulty of just-in-time inventory management, a practice Toyota pioneered that allows it to keep costs low but can create supply chain snarls when systems go down.
On Wednesday, Toyota’s production system remained down as it tried to resume output at some plants, though a further two would remain closed for a second day. The automaker has 25 production lines at 12 domestic plants that produce about a third of its global output, Reuters calculations show. Toyota, a pioneer of just-in-time manufacturing, has little room for production delays and relies on suppliers to quickly resume production at other plants.