Japan's top companies have agreed to their largest pay increases in 25 years, responding to Prime Minister Fumio Kishida's call for higher wages to counter inflation. Inflation in Japan is at its highest in four decades, driven by a weaker yen and rising commodity prices. Companies are expected to increase wages by an average of 2.85% in the upcoming “shunto” spring wage talks, up from 2.2% last year and the fastest gain since 1997. However, small firms, which employ seven out of ten workers in Japan, may not follow suit as they struggle to pass on costs to bigger clients at the end of supply chains. Experts suggest that sustainable base pay increases hold the key in determining how wages may affect prices, as excluding seniority-based pay, base compensation accounts for just 1.08% of labour costs.