(Corrects spelling in headline)
* Bellwether Toyota offers no base pay hikes in FY2020
* Wage hikes lose momentum as firms wary of profit squeeze
* Tame wages hinder 'Abenomics' aim of sustained growth
By Tetsushi Kajimoto and Naomi Tajitsu
TOKYO, March 11 (Reuters) - Against the backdrop of the coronavirus epidemic and a looming global economic slowdown, major Japanese firms tightened their belts in influential annual wage deals hammered out with unions on Wednesday.
Setting the tone, bellwether Toyota Motor Corp said it had agreed to give workers an average monthly pay raise that's 20% lower than last year's hike. What's more, base pay will not rise for the first time in seven years.
Major steelmakers followed suit and did not raise base pay, threatening Prime Minister Shinzo Abe's lofty goal of generating a self-sustaining growth cycle - a key plank of his 'Abenomics' policies to stimulate the world's third-biggest economy.
Over the past six years, major firms raised wages more than 2% each spring as Abe pressured businesses to boost pay to put an end to deflation and stagnation that has dogged Japan for two decades.
BOJ Governor Haruhiko Kuroda has said he would closely watch the outcome of the wage talks for clues on the inflation trend, amid speculation the central bank may expand stimulus next week to mitigate the economic damage from the coronavirus.
"Substantial wage increases cannot be expected in 2020 as base pay won't rise much," said Yoshiyuki Suimon, senior economist at Nomura Securities. He was referring to base pay hikes, which determine regular pay that accounts for most of monthly salary.
Rather then lifting base pay, Toyota agreed to an average rise of 8,600 yen ($82.31) per month for all employees.
The increase in the fiscal year starting in April compared with last year's 10,700 yen raise.
"Any negative impact to our current situation could have a significant impact on our workforce,” Masanori Kuwata, Toyota's deputy chief human resources officer, told reporters after reaching the agreement with its union.
"Because of this, we opted to forgo raising base salaries this year," Kuwata said, adding that Toyota's base salaries are already among the highest in the country.
Japanese major steelmakers - Nippon Steel, JFE Steel, a unit of JFE Holdings and Kobe Steel Ltd - said they agreed with unions that there would be no base wage increases for two years, the Nikkei business daily said. It would be the first time in seven years that these firms have not hiked base wages.
"Companies are turning cautious about base pay hikes as the new virus outbreak will exacerbate declines in profits," said Koya Miyamae, a senior economist at SMBC Nikko Securities.
"As the virus outbreak deepens, labour unions are also losing momentum towards base pay hikes, and both manufacturers and non-manufacturers become half-hearted about wage hikes."
With the economy teetering on the brink of a recession, Japanese firms have begun to take a more varied approach on remuneration, with more eschewing blanket pay hikes and shifting to merit-based wages rather than seniority-oriented pay in an effort to attract young and skilled workers.
Wage strategies have also been affected by structural changes in Japan's labour market.
About 40% of workers are now lower-paid part-time staff and contract workers - double the proportion seen in 1990, just before the Japan's asset bubble burst.
The growing army of lower-paid workers has led unions to prioritise addressing the income gap between permanent employees and others, rather than broad uniform pay raises. ($1 = 104.4800 yen) (Reporting by Tetsushi Kajimoto; Additional reporting by Aaron Sheldrick; Editing by Kenneth Maxwell and Kim Coghill)