It's difficult to fire someone, but Japanese businesses do reductions in salary for poor performance. There's no more risk to giving pay increases than there is to hiring someone.
Part of the reason that Japanese businesses don't give pay increases is because there's effectively no inflation in Japan, and growth in general has been mostly stagnant (though in reality that's not really true, but rather an excuse); but, the other reason is because for the most part, workers work in a company for life and don't switch companies for higher wages. There's no real competition on salaries, so no reason to be competitive on pay increases either.
Part of the reason that Japanese businesses don't give pay increases is because there's effectively no inflation in Japan, and growth in general has been mostly stagnant (though in reality that's not really true, but rather an excuse); but, the other reason is because for the most part, workers work in a company for life and don't switch companies for higher wages. There's no real competition on salaries, so no reason to be competitive on pay increases either.