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Japanese firms wary of big pay hikes

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TOKYO Big Japanese companies offered smaller pay increases at annual wage talks yesterday as the economy sputters, tempering hopes that domestic consumption will offset external risks to growth.

Major companies are set to raise wages for a sixth straight year as Prime Minister Shinzo Abe kept up the pressure on businesses to boost pay to beat deflation that has dogged Japan for nearly two decades.

But as economic growth slows, companies have grown wary about big pay increases because that commits them to higher fixed costs at a time of uncertainty as profits are levelling off.

"I worry the momentum towards wage hikes may weaken as underlying inflation remains weak and there is a strong sense of uncertainty," said Mr Hisashi Yamada, senior economist at Japan Research Institute.

Cautious Japanese businesses prefer to offer one-off bonuses and other benefits depending on annual profits.

They tend to focus more on the annual total sum payment than fixed base salaries, which will determine retirement payment and pension benefits.