Exploring Trends in Pay Raises Among Small and Medium Enterprises in Japan

In the backdrop of rising inflation and living costs, Japan's small and medium-sized enterprises (SMEs) are increasingly embracing pay raises to enhance employee satisfaction and retention. A recent report, BLUE REPORT December 2025, published by FORVAL's GDX Research Institute, sheds light on the wage hike dynamics within various industries, particularly focusing on manufacturing, construction, and wholesale sectors where the implementation rates exceed 70%.

Overview of Pay Raises in SMEs

According to the report, 75.3% of manufacturing businesses, 71.0% of construction companies, and 70.6% of wholesalers have reported instituting pay raises, reflecting a significant shift in response to both government pressure and market demands. Amidst soaring material costs and a pronounced labor shortage, these sectors are pouring resources into ensuring competitive wages to mitigate employee turnover and attract new talent.

Management Practices Affecting Pay Raise Implementation

The analysis undertaken by FORVAL aimed to uncover patterns among SMEs successfully implementing pay raises. Key observations highlighted that companies which have embraced the digital visualization of their management indicators—such as sales, profits, and key performance indicators (KPIs)—are more likely to enact salary increases. Specifically, 75.5% of companies managing their performance metrics effectively have raised wages, versus only 57.0% for those without such practices in place. This disparity suggests a strong correlation between data-driven management and the ability to make informed decisions regarding employee compensation.

Moreover, external advisory support also plays a critical role in driving wage increases. Firms receiving guidance from industry experts reported a pay raise rate of 71.8%, in contrast to 62.4% for those operating independently. This indicates that companies integrating support from specialists in management practices can significantly bolster their employee compensation strategies.

Industry-Specific Insights

When analyzing the wage increase statistics across sectors, it becomes evident that the manufacturing and construction industries are not only leading in implementation rates but also confronting challenges like rising raw material costs. Despite these increases, certain entities within the manufacturing realm struggle to maintain competitive wages, with many citing figures below a 4% raise threshold.

The findings of the report suggest that businesses prioritizing the visualization of their economic indicators are better positioned to grasp their financial realities. By doing so, they empower themselves to allocate funds effectively for pay raises while simplifying decision-making processes surrounding compensation.

The Role of External Experts

Another noteworthy point from the report is that external consultancy can profoundly influence SMEs' capacity to implement pay raises. With expert support, privately held companies can align their growth with market needs and navigate the complexities of wage increments. This collaboration could range from devising comprehensive pay strategies to aligning internal consensus on mandatory wage increases and securing the necessary funds.

Conclusion

The findings of the GDX Research Institute's report underscore the imperative for SMEs to not only focus on immediate wage increases but also on long-term, sustainable growth strategies. As the economic environment grows more challenging, the government's advocacy for salary hikes intertwines with SMEs' endeavors to retain valuable employees. Their wages reflect broader economic realities, and tackling the underlying cost structures through rigorous KPI monitoring and strategic consultancy could be pivotal in facilitating meaningful compensation reform.

Within Japan, where over 99% of businesses are classified as SMEs, the collective growth and transformation of these enterprises will ultimately shape the country's economic landscape. Those willing to embrace Green and Digital transformations stand to gain significantly. The GDX Research Institute remains committed to investigating and disseminating knowledge pertinent to the growth of SMEs, enhancing their transformation journeys through impactful research.

For further details on the full report, please refer to GDX Research.