TOKYO: Big Japanese firms are set to offer the largest pay rises in a quarter century this year driven by inflation at 41-year high, in a sign that cash-rich firms may be warming to Prime Minister Fumio Kishida's calls to boost consumption through higher wages.

As annual labour talks dubbed "shunto", Japanese for "spring offensive", wrap up at many blue-chips on Wednesday, positive signs are emerging Japan Inc may be ready to boost wages to a level that can at least offset high living costs amid surging import inflation.

As annual labour talks dubbed "shunto", Japanese for "spring offensive", wrap up at many blue-chips on Wednesday, positive signs are emerging Japan Inc may be ready to boost wages to a level that can at least offset high living costs amid surging import inflation.

Major firms are expected to raise wages by 2.85%, according to a survey of 33 economists taken by Japan Economic Research Center (JERC), far above last year's 2.2% and the fastest gain since 1997 when Japan slid into 15 years of deflation.

Given that consumer inflation, at 4.1%, outpace wage hikes, pay rises of 3% or more need to continue in the coming years to sustain price stability at 2%, said Hisashi Yamada, senior economist at Japan Research Institute.

"Average wage hikes that are consistent with the central bank's 2% price target are 3% which can be met this year albeit temporarily," Yamada said.

Takahide Kiuchi, a former Bank of Japan board member who is now executive economist at Nomura Research Institute, said base pay rises hold the key in determining how wages may affect prices.

The JERC survey showed that excluding seniority-based pay, base compensation that boosts fixed labour costs accounts for just 1.08%.

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