Japan's Strongest Wage Growth in 32 Years Could Fuel BOJ Rate Hike
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Japanese workers saw their base salaries increase at the fastest pace in three decades, a development that could encourage the Bank of Japan (BOJ) to raise interest rates later this month, Bloomberg reports.
The labor ministry reported Thursday that base salaries rose 2.7% year-on-year in November, driving nominal wages up 3%. This exceeds economists' expectations and marks the strongest wage growth since 1990. A more stable measure of wage trends watched by the BOJ, which excludes bonuses and overtime, showed wages for full-time workers gained 2.8%, remaining at or above 2% for 15 consecutive months.
The yen strengthened slightly against the dollar following the report, gaining up to 158.10. However, real cash earnings fell 0.3% from a year earlier, extending a four-month decline. This stagnation in real wages was partly driven by inflation outpacing pay growth, as price gains strengthened in November after the government halted subsidies for utility bills, pushing up energy costs.
The steady wage trend could rekindle speculation about a near-term rate hike from the BOJ, particularly following the upcoming policy decision meeting. While BOJ Governor Kazuo Ueda's recent dovish comments have led market participants to expect the next policy change to come later, the latest wage data could change perceptions.
"Today's data doesn't necessarily indicate the wage trend has improved dramatically," said Yuya Kikkawa, an economist at Meiji Yasuda Research Institute, to Bloomberg. "Still, the BOJ could hike if there is additional positive information, for example from branch managers' hearings."
The BOJ is scheduled to release its latest regional economic report following its branch managers meeting later today, and Deputy Governor Ryozo Himino is set to give a speech to local business leaders in Yokohama next week.
Ueda has previously indicated that he would need more data, including signs of sustained wage growth, before taking further tightening steps. This makes the latest pay data particularly significant, given the upcoming annual spring wage negotiations.
"A surprisingly strong rise in labor cash earnings in November will likely increase the Bank of Japan's confidence that wages are bolstering consumer price trends toward securing its 2% target," Bloomberg economists wrote.
Last year, the BOJ conducted its first rate hike in 17 years in March, shortly after Japan's largest trade union federation, Rengo, announced that its members had secured the highest wage increases in over three decades. This year, Rengo plans to release its initial wage increase tally on March 14, just five days before the BOJ's policy meeting results for that month. Rengo is aiming for at least a 5% wage increase across all companies, with a slightly higher 6% target for small and medium-sized enterprises.
"We are expecting this year's spring wage negotiations to conclude at somewhere around 5%, not much of a slowdown from last year's 5.1%," said Kikkawa to Bloomberg. "Labor shortages will likely sustain pay momentum."
Ueda also indicated in December that the momentum of wage negotiations could become apparent even before Rengo's official tally in March. There are already some promising signs from individual companies, including retail giant Aeon Co. and insurer Nippon Life Insurance, which are reportedly planning to raise the salaries of some employees by at least 6%. Japan's persistently tight labor market is also likely to keep pressure on companies to continue raising wages to attract and retain talent.
However, smaller firms are increasingly voicing concerns about the feasibility of sustained wage hikes. In 2024, over 50% of SMEs said they gave up raising salaries, citing challenges in passing on costs to customers and weak profit outlooks, according to a survey conducted by the Shinkin Central Bank Research Institute during the peak of wage talks.
The government has also stepped up its calls for wage increases, with Prime Minister Fumio Kishida re-affirming in a new year speech his commitment to achieving economic growth through pay gains and increased investment. Kishida also reiterated his goal of raising Japan's minimum hourly wage to ¥1,500 ($9.49) within the next five years, which would require an increase of more than 7% per year. The minimum wage currently stands at ¥1,055, following a recent adjustment in August, with the changes reflected from October payrolls.