Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen

Economic

Summary:

Visa rules eased, but currency weakness tarnishes Japan's appeal for overseas hires.

At a nearly 40-year low versus the dollar, the yen and its sharp weakening are exercising the minds of Japanese government officials and central bankers racing to come up with an urgent, cogent policy response.

Households in Japan face a 90,000 yen ($570) jump in annual expenses from higher prices for food and energy imports, one estimate shows, as the currency's skid drains purchasing power.

In the real-world economy, from the shop floor to the C-suite, Japan Inc. is wrestling with one of the starkest manifestations of enyasu, or a weak yen: how to hire and retain the overseas workers and executive talent it needs amid a national labor shortage. Even as Japan has moved to ease work visa restrictions, the currency's slide means immigrant workers can make much more money in other countries to send home in the form of remittances.

For some companies, the response is as obvious as it is painful -- hike wages to attract overseas workers and pass the cost on to consumers, fueling inflation pressures.

In one case last year, Japanese housekeeping service provider Bears, which relies partly on young, qualified workers from the Philippines, raised its service fees for the first time in 18 years, by up to 20%. In the previous fiscal year, Bears' revenue topped 6 billion yen.

In low-margin, competitive businesses, however, as well as at smaller outfits, big wage increases are not a viable long-term option, even as newly introduced restrictions on working time -- Japan's so-called '2024 problem' -- make labor harder to source, both domestically and internationally. Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen_1

Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen_1

"My salary has remained the same," said Spandan Sunar, a 27-year-old Nepalese citizen. Sunar works at a transportation company in Chiba, east of Tokyo, as a contractor, and used to send about 50,000 yen per month back to his family in Nepal when he first arrived in 2018.

To send the equivalent amount now would cost Sunar 80,000 yen a month, extra money he can't afford. That means sending less back to Nepal. And while he used to save 30,000 yen per month, he has had to reduce that amount amid rising cost of living pressures.

"Foreigners working in Japan are struggling with low-income problems," he said.

Sunar wistfully compared his situation to Nepalese friends earning higher salaries in the U.S. and Australia, noting that some considered moving to Japan before opting to go elsewhere. But for Sunar, abandoning his current location would mean also jettisoning considerable effort spent learning Japanese and navigating the country's bureaucracy.

According to a 2024 survey by human resource company Mynavi Global, 91% of foreign students and workers living in Japan said they wanted to remain in the country. But that represented a 5.8 percentage point drop from 2022. The top reason cited for not wanting to work in the country? The weak yen.

Even minus the currency factor, Japanese wage levels have long been modest, depressed by decades of deflation and low growth after the bursting of Japan's asset bubble in the early 1990s.

Japan's average monthly earnings were $2,800, way lower than $4,600 in the U.S. or $3,483 in Singapore, according to International Labor Organization numbers for 2021, the most recent year for which data was available.

The yen's dramatically rapid slump has made matters worse. The currency has skidded from about 130 yen to the dollar at the beginning of 2023 to beyond 160 yen this month.

Some companies have touted more flexible working conditions as a strategy to recruit overseas hires. Japanese payment service PayPay has been offering remote working options to attract talented engineers.

"You can work from anywhere in Japan, including resorts, with our fully remote working style," a spokesperson told Nikkei Asia. The company said it now has engineers working remotely from tourist destinations all over Japan, and "we have not seen any negative impact on hiring due to the weakening yen."

Still, that potential solution might not be suitable for less skilled jobs.

"Relatively low-wage workers, such as technical intern trainees, workers in service and manufacturing industries are the most affected by the weak yen," said Hiroo Yamanouchi, a partner and the head of career consulting at Mercer Japan.

Yamanouchi said that one implication of the yen's weakening has been that the range of countries where lower-skilled workers are coming from is becoming limited to low-wage countries such as Indonesia, Myanmar, Cambodia and Bangladesh.

In Vietnam, for example, there has been a decline in the number of people willing to come to Japan to earn money as its economy has developed, according to Yamanouchi.

At household services provider Bears, some staff from the Philippines have been cutting back on their living and leisure expenses, a company representative told Nikkei Asia.

While no existing employees have left for other countries because of the exchange rate, the representative said, the weaker yen "cannot be a positive thing for hiring. ... It is scary what kind of ripple effect there would be if the yen continues to depreciate further."

To be sure, as Shinji Yamazaki at human resource company Career-tasu explained, non-Japanese students who come to Japan because they like the country tend to want to work and stay, regardless of the opportunities for higher-paid jobs abroad.

Japanese is unique compared to other languages, and "has an effect of making people less likely to leave Japan once they have mastered it."

But without wage hikes, "if the weak yen trend continues, it could lead to declines in the number of people who want to come to Japan in the future," said Yamazaki, who is deputy director of Career-tatsu's global business development department. Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen_2

Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen_2

One sector where Japanese companies are particularly exposed to global competition in luring talent is information technology, as businesses confront skills gaps in their digital transformation efforts.

According to human resources company Human Resocia, Japan's IT engineer remuneration in 2023 declined by 5.9% in U.S. dollar terms compared to the previous year, while it increased by 0.4% in yen. The average annual pay level was $36,061, a little more than a third of the $92,378 it was in the U.S. according to calculations based on average exchange rates between January and September 2023.

For white-collar jobs, Kevin Naylor, chief executive of Future Manager World USA and former director at talent search agency en world Japan, said companies in Japan have tended to prefer to hire native citizens or foreigners already in Japan.

Still, "the areas where there have been more opportunities to hire non-Japanese have been in technology," Naylor said.

Luke Furnival, who covers the technology market as associate director of recruitment company Robert Walters Japan, said, "There is usually a significant gap between what [candidates] expect and what they can make" in Japan. "Over the last couple of years, we've had to really focus on managing that expectation more than previous years."

According to Furnival, some companies have adjusted their strategies on securing the necessary workforce. "A lot of clients opt for more outsourcing models," he said, in which they contract with global vendors who offer digital skills either offshore or locally.

As the yen weakens, it is becoming more costly to hire from overseas. On June 27, it took almost 161 yen to buy a dollar.

Costs are also rising for companies looking to fill their top management positions.

The cost of hiring executives "usually becomes twice or three times higher than just hiring the local leaders or promoting [employees from] within," according to Junichi Takinami, country managing director of Korn Ferry Japan.

Speaking on condition of anonymity, citing the sensitivity of the matter, one recruitment firm representative told Nikkei Asia that one client, a major manufacturer, in the last six months stopped looking to fill executive positions with candidates outside Japan. "They just cannot compete," he said.

When companies do try to bring in international C-suite executives, they generally have to offer the same or higher compensation than the candidate already gets in dollar terms. "Cost surely is higher due to the weak yen for companies," said Kenichi Iwata, Tokyo Office Leader of headhunting outfit Egon Zehnder.

In some cases, companies have no alternative but to look abroad to fill talent gaps in Japan.

"If [companies] are sourcing [talent from abroad] to solve an issue, a skill set or a product capability that the company doesn't have that they must have, then compensation is secondary," suggested Peter Rackowe, Korn Ferry Japan's head of executive and professional search. Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen_3

Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen_3

Rackowe referred to offshore wind as an area where Japanese companies have been searching abroad for executives and specialists.

"There is an awareness by [Japanese] companies that there is a certain skill set that they need to have, that Japan may not have as much of" compared to other places such as Europe, he said.

Meanwhile, the weak yen's impact isn't restricted to hiring overseas.

While there isn't yet a widespread "brain drain" of Japanese talent away from its home country, according to most of the human resource companies contacted by Nikkei Asia, there are some early indications of movement.

"We are seeing more Japanese senior executives wanting to relocate to Singapore, Malaysia and Vietnam," said Christopher Delcourt, Japan country manager of recruitment company Hyre.

Relocating overseas for Japanese high-earning nationals has always been attractive in terms of countries applying lower income tax.

"Now with the weak yen, it is an extra element that they are taking into consideration," since they can earn more in U.S. dollar terms, Delcourt said.

While weak yen pressures mount, Nepalese contractor Sunar is in Japan for the long haul, he said, aiming to work and save money for another 10 years before returning to Nepal to build his own store.

But a Nepalese friend of his has already quit Japan to try his luck making more money in the United States.

"I believe that more foreign workers, especially from developing countries, will move out of Japan to countries with higher incomes such as ones in Europe and the U.S.," Sunar said.

Source: NikkeiAsia

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Japan's New Enemy in Fight to Lure Immigrant Workers: The Tumbling Yen

Source: NikkeiAsia

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