In the boardrooms of Japan's biggest corporations, a phrase is being repeated with an urgency that would have seemed bizarre a decade ago: we need to raise wages. At Toyota, at Sony, at the trading houses and regional banks that form the backbone of Japan Inc., the 2026 shunto — the annual spring wage negotiations between unions and management — has produced increases averaging 5.8%, the highest since 1991, the year the asset bubble was still inflating and Japan still believed its economic dominance was permanent.
For anyone who has watched the Japanese economy through its Lost Decades — the long deflationary stagnation that followed the bubble's collapse, during which wages barely moved and companies sat on cash rather than invest or pay — the current moment feels like a rupture. The Bank of Japan raised interest rates twice in 2024, ending its decade-long experiment with negative rates. Inflation, dormant for so long that many economists had stopped believing it could return, is running at 2–3%. And the virtuous cycle that policymakers theorised about for years — rising wages feeding consumer spending, which feeds corporate revenues, which justify more wage increases — appears, tentatively, to be happening.
The mechanism matters. Japan's shunto system is a collective bargaining framework in which major corporations set a wage benchmark that smaller companies and the broader labour market tend to follow. When Toyota agrees to a 6% pay rise, the ripple effects extend far beyond its own workforce. The Rengo labour federation, representing 7 million workers, reports that its member unions are securing their best outcomes since the early 1990s across virtually every sector.
Corporate Japan's motivation is not purely altruistic. Japan's workforce is shrinking — the population peaked in 2010 and the working-age population is falling faster than the overall total. Labour shortages are acute in hospitality, logistics, healthcare, and construction. Wages are rising partly because companies have no choice: they cannot attract and retain workers without paying more. The structural driver is demographic, and it is irreversible.
The Tokyo Stock Exchange has also played an unexpected role. Beginning in 2023, the TSE began publicly identifying companies trading below book value and pressuring them to improve capital efficiency — effectively telling Japan's cash-hoarding corporations that their era of defensive balance sheets was over. The resulting wave of share buybacks changed the psychology of Japanese boardrooms in ways that appear to be permanent.
The risk is that wage increases concentrated in large corporations fail to reach the small and medium enterprises that employ 70% of Japan's workers. But after three decades of stagnation, the direction of travel has changed, and that, by Japan's own patient standards, counts as a revolution.
