Big Japanese firms will offer pay rises of 2.85% on average for the financial year starting in April, according to estimates by Japan Economic Research Center (JERC).

If realised, they would be the fastest pay rises since 1997 when Japan was entering grinding deflation and ‘lost decades’ of stagnation.

Japanese policymakers are urging cautious Japanese businesses to accelerate wage growth at closely-watched annual ‘shunto’ spring labour-management talks that conclude around mid-March.

While Japan’s inflation rate is now well above the Bank of Japan’s (BOJ) 2% target, policymakers say it is mostly driven by commodity and energy costs and is therefore unsustainable without accompanied wage growth.

JERC’s forecast for big firms to offer pay hikes of 2.85%, comprises a 1.08% rise in base salaries and a 1.78% increase in additional salary based on seniority.

Prime Minister Fumio Kishida’s government has called on companies to offer 3% annual wage hikes while Japan’s largest trade union confederation, known as Rengo, has called for 5% pay increases.

Sustainable inflation entailing wage growth could pave the way for the BOJ to exit its massive monetary stimulus, although BOJ governor Haruhiko Kuroda has repeatedly said that it would be too early for the central bank to move away from its stimulus policy until virtuous inflation along with wage growth is in sight.

In last year’s wage talks, major Japanese firms offered a pay rise of 2.2% on average, the biggest increase in four years.