Tokyo: Toyota Motor Corp (7203.T) said on Wednesday it was “impossible” to meet union demands for a 13,300 yen ($112) monthly pay rise, as the automaker concluded the first day of labor talks widely considered crucial for Japan’s economic recovery.

The outcome of annual pay talks at Toyota is often seen as a bellwether for other companies. A favorable result for the union is therefore critical for Prime Minister Shinzo Abe’s goal of creating a virtuous cycle of higher wages, bigger consumer spending and economic growth.

Toyota’s management will finalize its response on March 18.

Workers at Japan’s eight automakers are all seeking base wage hikes of 6,000 yen - about two to three times more than the additional pay they received last year. Toyota’s workers want another 7,300 yen on top of that in seniority-related raises and a one-off bonus equivalent to 6.8 months’ worth of salary.

“The request was far higher than what we had expected, so we conveyed to them that ... it was totally impossible to meet the demands in full,” Tatsuro Ueda, managing officer in charge of human resources, told reporters at Toyota’s headquarters.

The wage hike, equivalent to a 3.7 percent raise, plus bonus and other perks would add 20 billion yen ($168.36 million) to annual costs, Toyota said.

ABENOMICS BENEFICIARY

Base salary rises were rare under a decade-and-a-half of deflation. But unions across the country have been emboldened by Abe’s pressure on corporate Japan to help the economy, struggling with weak consumption after a sales tax hike.

That is especially true at Toyota, which has been a major beneficiary of a weaker yen - a product of an extra-loose monetary policy which in turn is a pillar of “Abenomics”. Toyota would also benefit from plans for lower corporate tax rates.

The automaker is set to report a second straight record profit for the business year ending March as efforts to become leaner when the yen was strong allowed it to profit even more as the currency weakened.

Last year, Toyota agreed to a 2,700 yen base salary hike, the first in six years though short of the union’s request for 4,000 yen.

The automaker has long cited the need for significant spending on research and development to stay ahead of rivals when justifying its hefty cash pile and desire to keep fixed costs in check.

At the same time, executives have said Toyota is eager to contribute to economic recovery, including by making companies in its supply chain stronger. The majority of Japan’s workers are employed at such small and mid-sized businesses.