Prime Minister Yasuo Fukuda (right - middle) attended a meeting of the Advisory Council on "Rural Areas Revitalizing" held at the Prime Minister's Official Residence on Mar 12, 2008.

Politicians and trade unions says that despite six years of record profitability at large big exporters such as Toyota, pay is kept down to boost dividends, which has a serious impact on domestic demand and consumption.

SEE Finfacts Report: Toyota has 110,000 temporary workers in Japan on $10.50 an hour as Annual Dividend payout exceeds 20% - domestic car sales at 30-year low; one third of workforce are "temps"

Leading exporters such as as Toyota, Honda and Toshiba agreed to pay rises for the third straight year but while the principal electronics union had demanded a ¥2,000 (€13, £10, $19.44) monthly wage increase, the companies only conceded a ¥1,000 increase. (€6.50, £5, $9.72)

Japan's Prime Minister Fukuda on March 6th told the Keidanren, Japan's biggest business lobby, to improve efforts to raise wages and stimulate consumer spending.

``We won't change our attitude even though we also think the same way'' as Fukuda, Toyota's President Katsuaki Watanabe said on March 7th in Tokyo. ``I told the labour union that we can't easily increase our costs because of business conditions and intensified competition in the world.''

Toyota's increase in wages would pay for three cups of regular coffee at Starbucks.

“When we look at the overall environment, competition is still very fierce and we need to evaluate how that impacts our business,” said a Toshiba spokeswoman.

The sharp rise of the yen in recent months has hit exporters and it is estimated by Sony, which generates more than 70% of its sales overseas, that a ¥1 rise against the dollar takes ¥6bn off operating profits.

Fukuda wrote in a weekly email last week: “I think now is the time when the fruits of reform should be passed on to the people and household budgets.” He said that  pay rises would “lead to much bigger profits for companies as the economy will expand as a whole if consumption increases through higher wages.”

Fukuda also said: "Price rises would be inconsequential if salaries increased at a faster pace. The average salary, however, has either remained at the same level or decreased for the past nine years in a row, which has increased the strain on household finances."

In related news, data published on Wednesday showed that consumer confidence across Japan plunged to its lowest level in almost five years in February, according to the Cabinet Office. The index of confidence among households composed of two or more people came to an unadjusted 36.1, its lowest level since March 2003.

Consumer prices rose 0.8% in January, as they did in December and inflation is at a nine-year high. Wholesale prices in February jumped 3.4%, the fastest pace in 27 years because of oil and wheat costs, a report showed today. 

From 1997 to 2007, average pay in Japan fell about 11%, according to the labor ministry reports. Thirty-three percent of workers held a part-time or temporary position last year, compared with 20% 12 years earlier.