Japan Finally Gets a Raise
Robust wage gains have been the missing piece of the puzzle keeping Japan’s rates low—now they are finally here.
Japanese workers are about to receive much bigger paychecks. That could make the Bank of Japan’s decision on whether to ditch its ultralow interest rate policy—which could come as soon as next week—easier.
Some of Japan’s biggest companies have agreed to give their employees their largest pay rise in decades, as workers demand higher wages to combat inflation. Every spring, labor unions in Japan negotiate with companies on wages in a process called the Shunto. The average pay rise last year from the Shunto was 3.6%, already much higher than previous years.
This year, the unions are asking for a pay rise of more than 5% and they may well get it, according to figures from the Japanese Trade Union Confederation, also known as Rengo.
Many of the largest companies like Toyota and Nissan have accepted what their unions asked for and some, such as Nippon Steel, have even gone further. An aging population has contributed to labor shortages while inflation—2.6% in 2023, high by Japan’s standard—has pushed employees to ask for more.
The first round results of the Shunto will come out this Friday and Morgan Stanley estimates average wage increases could be 5.2%. The bank thinks the final round result—which will be announced in the summer—will be around 4.8%. That final figure is usually lower because it includes employees covered by some smaller unions. The pay raise also includes regular hikes depending on seniority. While the Shunto is for unionized workers, the results are a good indication of the overall trend for wages.
Western countries might worry that a wage-price spiral could result in dangerously entrenched and elevated inflation. But for Japan, a country that has been mired in deflation for much of the past several decades, strong wage growth is to be celebrated: It could point to more steady consumption growth, too.
The robust job market will also give the Bank of Japan more room to contemplate an exit from its longstanding negative interest rate regime. Japan has held back from raising rates, unlike other major central banks, because of worries that it could snap the country back into deflation. Now the BOJ may be more comfortable raising rates soon, perhaps as soon as at next week’s meeting on Monday and Tuesday.
The market has been expecting a rate hike. Yields on Japan’s one-year government bonds have risen by around 0.15 percentage points to 0.19% so far this year. The Japanese yen appreciated about 2% in the past two weeks against the dollar on hopes of higher rates—especially with expectations of rate cuts in the U.S. also building.
The Japanese yen was one of the worst-performing currencies in the world over the past few years. But a strong labor market means this year could be very different.
Write to Jacky Wong at jacky.wong@wsj.com
topics
