Shinzo Abe, Japan's prime minister, attends a budget committee session in the lower house of the Parliament in Tokyo, Japan, on Friday, Feb. 28, 2014. Abe's ruling Liberal Democratic Party is planning a governance code for Japanese companies to boost their competitiveness and enhance investor protection, an official said. Photographer: Haruyoshi Yamaguchi/Bloomberg *** Local Caption *** Shinzo Abe

Tokyo - Large Japanese companies such as Toyota Motor and Panasonic offered the most generous pay raises in years yesterday, a victory for the government’s efforts to defeat deflation, but workers will still struggle to offset a looming sales tax increase.

The sales tax rate will rise from 5 percent to 8 percent with effect from April 1.

Under heavy pressure from Prime Minister Shinzo Abe to help kick-start a durable recovery with hefty pay increases, major firms responded more generously to wage demands than some experts had forecast.

Still, this first batch of companies in Japan’s annual “spring labour offensive” represent the bluest of the blue chips. The vast majority of Japanese employees work for smaller companies that have not benefited as much from so-called Abenomics and their compensation is likely to be less generous.

Japanese companies are enjoying bumper profits thanks to Abe’s massive stimulus policies. But this year the companies had to take on not only unions but also the ostensibly pro-business Abe administration.

Economy Minister Akira Amari, who on Tuesday threatened unspecified action against “unco-operative” companies, said yesterday that “the management side responded above expectations” and their pay offers would become “a big driving force for escaping deflation and reviving the economy”.

Increases in base pay and seniority increases amounted to between 2.2 percent and 2.3 percent for major firms, while small and mid-size companies were offering more than 2 percent, said Hisashi Yamada, the chief economist at the Japan Research Institute.

Toyota, a benchmark for pay raises, will give its Japanese-based workers their biggest increase in monthly pay in 21 years next month.

Base pay, a critical component that is hard for companies to reverse during downturns, will rise by ¥2 700 (R282) a month, the first increase in six years but less than its union’s demand for a ¥4 000 increase. Including bonuses, total compensation will rise 7.6 percent.

While Nissan Motor met workers’ demands for a ¥3 500 raise in monthly base pay and a hefty bonus, Daihatsu Motor offered just ¥800.

Among electronics makers, Hitachi and Panasonic said they would boost their monthly base wage by ¥2 000, half what unions requested. – Reuters