The average hourly minimum wage in Japan is set to top ¥1,000, a key government target, after a labor ministry panel proposed on Friday that the rate should be raised by ¥41 to ¥1,002.

With the government eager to create a healthy cycle of pay and price increases, the minimum wage panel suggested a record 4.3% hike from the current average of ¥961.

The goal of bumping up the average minimum wage to ¥1,000 was set in 2015 and was widely expected to be achieved this year, with Prime Minister Fumio Kishida stressing the importance of reaching that milestone earlier this year.

“We saw a record minimum wage hike last year, but I hope that the minimum wage panel that consists of (representatives from) the government, labor and management will have a thorough discussion to possibly achieve the nationwide average of ¥1,000,” Kishida said in March.

Around this time every year, the ministry’s minimum wage panel proposes a target figure for hourly wage increases. Based on that number, each prefecture makes a decision on its minimum wage in October.

The current national average is ¥961, with ¥1,072 in Tokyo being the highest and ¥853 in Aomori, Akita, Ehime, Kochi, Saga, Nagasaki, Kumamoto, Miyazaki, Kagoshima and Okinawa prefectures being the lowest.

Wage hikes are seen as more important than ever, as the Japanese economy has been regaining momentum after the hit from the pandemic, but many business operators are struggling to secure workers amid a labor shortage.

Even if the average minimum wage exceeds ¥1,000, companies will still likely have a hard time attracting workers, but nonetheless the record hike is still seen as important to maintaining the momentum toward overall wage increases.

In addition, pay raises are essential to fending off the impact of Japan's relatively high inflation, which has been driven by the increased cost of imported commodities amid the Russia-Ukraine war and the weak yen.

Under such circumstances, Japan’s entrenched deflationary mindset seems to be changing, with more firms becoming willing to pay higher wages to mitigate the impact of price hikes.

The annual spring negotiations between labor unions and companies, known as shuntо̄, ended with a 3.58% average pay raise, marking a 30-year high, according to a report by the Japanese Trade Union Confederation, better known as Rengo.

The inflation rate has remained high, with consumer prices excluding volatile fresh food having climbed 3.3% year-on-year last month. The pace accelerated slightly from May, when the figure came in at 3.2%, as major utilities raised power bills.