TOKYO—Facing the tightest labor market in Japan in 43 years, Gatten Sushi recently hired two Chinese kitchen workers and a Filipino waitress who calls out “Welcome” to customers, each for about $10 an hour.
“I see economic merits working here now and perhaps even more so in the future,” said Shen Xigang, one of the Chinese workers, a university student who wants to learn the sushi trade and stay in Japan after graduation.
For the first time in the postwar era, Japan has opened itself to a significant though still small cohort of low-wage foreign labor. And that presents a clash between Japan’s short-and long-term goals—trying to raise wages to help spur spending and growth while expanding the workforce.
Business leaders and economists in Japan have called for more immigration, saying it is the only way for a nation with a fast-aging and declining native population to add new workers. Yet such people are helping keep wages down, contradicting Prime Minister Shinzo Abe’s priority of lifting wages and productivity.
“If labor costs were rising, that would put pressure on companies to boost productivity,” said Takuya Hoshino, an economist at Dai-ichi Research Institute. “But the rise of foreign workers is actually placing a halt on such moves.”
Japan added 400,000 foreign workers in the four years through 2016, surpassing one million for the first time, or nearly 2% of the workforce, labor ministry data show. That is still low compared to the U.S.’s 17% of foreign-born workers but enough to sway the labor market in urban centers like Tokyo.
Without the foreign help, “we would have to close some of our restaurants,” said Yoshiteru Fukui, the hiring manager at RDC, a company that runs sushi chains including Gatten Sushi.
Foreign workers help bolster Japan’s workforce as its population aged 15 to 64 declines at more than 600,000 people a year. But boosting wages also is vital after 15 years of deflation in Japan that has damped economic activity.
Mr. Abe has had some success with breaking out of the deflationary cycle and restoring Japan to steady growth. The economy has expanded for six straight quarters, the longest streak in more than a decade, and the unemployment rate is just 2.8%, the lowest level in 23 years. For every 100 people seeking a job, 152 positions are available, the strongest showing since 1974.
Such relative success helped propel Prime Minister Shinzo Abe’s ruling coalition to victory in parliamentary elections on Sunday.
Inflation and wage growth, however, have been slow to follow. Core inflation stood at 0.7% in August, and real wages fell 0.1% that month over a year earlier.
RDC’s Mr. Fukui said foreign workers help the company keep prices flat, especially at budget places like a conveyer-belt sushi restaurant where Vietnamese workers in masks and plastic gloves place fish atop small rice balls formed by a robot. They are useful in other ways too: Sometimes they help out by serving foreign tourists in their own languages, and Mr. Fukui hopes they will continue working with the company even when they go back home to help it expand overseas.
Chinese account for about a third of all foreign workers in Japan, the most of any single country. On the increase are Vietnamese and Nepali workers, accounting for around 15% and 5% of foreign workers respectively.
Minimum wage in Japan, too low to attract many native-born workers, is still generous for many other Asians. In 2015, Japan’s minimum wage was 21 times higher than that of Vietnam, 12 times higher than in Nepal, and triple that of China, data from Dai-Ichi Research Institute show.
Many foreign workers come as language students, allowed to work for up to 28 hours a week. Industry experts say some go beyond the limit, working longer hours and barely attending school. Others find work through internship programs.
Most foreign workers cannot stay permanently owing to immigration rules. Mr. Abe has repeatedly said he doesn’t want large numbers of immigrants in low-paying jobs coming to Japan for the long term.
That hasn’t stopped companies from doing whatever they can to get workers from other Asian nations, especially in service jobs where the labor shortage is severe. Convenience store chain Family Mart Uny Holdings Co. holds recruiting sessions at language schools targeting foreign students, while Lawson Inc . operates training centers in Vietnam to teach people how to greet customers and use cash registers even before they come to Japan and start looking for a job.
Dai-ichi Research Institute’s Mr. Hoshino says eventually Japan will have to make up its mind whether the foreign workers, on the whole, are worth having. “On the surface, Japan is saying it won’t accept immigrants, but in reality it’s gradually become reliant on foreigners,” he says. “It can’t go on like this forever.”