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TOKYO — Japan must spread the momentum of wage growth across the country to conquer rising inflation as annual labor negotiations wrap up next month, Prime Minister Fumio Kishida said on Sunday, with backing from a major business lobby.

For years wages have been slow to grow in Japan as cautious firms hoarded a record cash pile, while curbing labor costs, despite government pressure on companies to raise pay.

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The government has put a strong focus on wage hikes to stimulate private consumption that makes up more than half of the economy, hoping to stoke a positive cycle of economic growth and wealth distribution under Kishida’s new capitalism agenda.

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“Above all, wage hikes that beat price hikes are needed,” Kishida told an annual gathering of his ruling Liberal Democratic Party (LDP), which lays out its policy agenda for this year.

“The wave of wage hikes must spread to small firms and local areas to enhance competitiveness amid heated competition to attract workers” amid labor shortages, Kishida said.

While achieving “structural wage hikes,” Kishida pledged to continue to take steps to curb energy and food prices to ease the pain of inflation on households.

Masakazu Tokura, head of Japan’s biggest business lobby Keidanren, expressed support for the wage push.

“Now is the crucial stage to revive a strong economy,” he said. “Structural wage hikes and human capital investment are vital…”

At this year’s labor talks, large firms are expected to offer the biggest pay hikes in 26 years, or an average of 2.85%, a poll of 33 economists by Japan Economic Research Center (JERC) shows.

Still, that pace would fall short of consumer inflation which is running at 4.2%, and the 5% targeted by Rengo, Japan Trade Union Confederation.

Moreover, the small companies that provide most of Japan’s jobs generally can’t increase pay, business owners, economists and officials say. (Reporting by Tetsushi Kajimoto; Editing by Kim Coghill)