Bank of Japan Under Scrutiny as Unions Declare Salary Hikes

The outcome of important wage raise negotiations in Japan will be disclosed Friday, with a victory for workers expected to pave the way for a much-anticipated shift away from the central bank’s ultra-loose monetary policy.

Wage growth has been sluggish in Japan for decades, and the government partly blames this for the economy’s troubles.

However, at this year’s regular spring salary negotiations, members of Japan’s largest trade union, Rengo, wanted the highest average pay raise since 1994.

Rengo will release early results of the bargaining later Friday, with optimism high after large companies such as Toyota and Panasonic totally conceded to their employees’ compensation demands.

Economists will be eagerly watching the news for hints that the Bank of Japan may soon reverse its long-standing monetary easing measures.

The bank’s governor, Kazuo Ueda, has described the spring negotiations as a “important point” in discussions over when and how to make the transition.

Central banks around the world have raised interest rates in recent years to combat rising inflation, but the Bank of Japan is an anomaly, maintaining its negative interest rate and other policies aimed to stimulate the stagnating economy.

Its decision to maintain these measures has significantly depreciated the yen against the dollar.

Nonetheless, the bank has stated that it must witness a “virtuous cycle” of growing wages and sustained, demand-driven inflation of 2% before modifying its policies.

The bank will announce its policy decision on Tuesday.

“Rengo’s first tally of responses… should greatly encourage the Bank of Japan to revise its policy at its March meeting,” said BNP Paribas chief economist Ryutaro Kono.

‘Strong trend’

Rengo revealed a 3.8 percent average wage increase last year, or 11,844 yen ($80) per month, its greatest result since comparable numbers were available in 2013.

This year, its members have requested an average raise of 5.85 percent.

Prime Minister Fumio Kishida has asked business leaders to increase pay faster than inflation.

“I’m encouraged to see a strong trend of wage increases, even greater than last year,” he said at a gathering of business and labor leaders on Wednesday.

Nissan and Mitsubishi Heavy Industries are two of the major Japanese corporations that have given unions all they sought for this year.

Nippon Steel and Suzuki have apparently offered more than their unions had requested.

According to Nobuko Kobayashi, Asia-Pacific strategy execution head for consultancy firm EY, salary discussions in Japan are “looking promising” and supported by the country’s chronic labor shortage.

“Steady and sustained wage growth in tandem with inflation around two per cent year-on-year will signal Japan’s exit from decades-long deflation,” she told the Reuters news agency.

Japan just averted a technical recession in the second half of 2023, but economists believe the world’s fourth largest economy is still struggling.

Gavin Friend of National Australia Bank stated on Thursday’s NAB Morning Call podcast that “everybody’s now waiting” for the Bank of Japan to raise interest rates.

“Really, what the BoJ is looking for is a significant breach or move higher than last year’s first reading on the Rengo survey,” he added.

Leave a Reply