TOKYO – Mr Hideyuki Michimoto, the third-generation owner of pickled daikon radish maker Michimoto Foods, feels a sense of discomfort over what he is able to pay his 60 employees.

While he knows that costs of living are soaring and he empathises with his staff, the 65-year-old said: “There is absolutely no way we can afford the 5 per cent wage increase that the government wants.”

A stop-gap solution for his company, founded in 1937 in Miyazaki prefecture in south-west Japan, was to “gradually raise productivity by having our workers work shorter hours for the same pay, which means the unit wage per hour goes up”.

His candid admission reflects the pressure on small and medium-sized enterprises (SMEs) to follow their larger counterparts that have reported relatively big salary increments en masse, with their employees set to get a raise of an average 3.8 per cent from the next fiscal year starting in April.

This exceeds 3 per cent for the first time in 29 years in a process known as the shunto wage offensive negotiations. But it is still lower than the 5 per cent the Japanese Trade Union Confederation, the country’s largest labour union also known as Rengo, is calling for.

There are manycomponents to wages, and the key will lie in how much companies can raise base pay. This refers to the across-the-board and permanent component that affects future allowances like pensions. Companies, mired in a deflationary mindset, have been wary of such fixed costs and long opted to give one-off bonuses in good years instead.

The annual shunto process, which began in 1956 during the pos...