Economists and investors looking for a catalyst to prompt the BOJ to scale back its stimulus are keeping a close eye on wage growth, a key factor in the BOJ's goal of sustainable inflation.
While Japan's largest trade union federation achieved its biggest pay rise in three decades this year, Bank of Japan Governor Kazuo Ueda will likely want to see more evidence of sustained wage growth before he calls for a pause in one of the world's most ambitious monetary easing programs.
The following, then, is likely to be a timeline of key events that the market will be watching closely to influence the pace of wage growth next year:
October 19: Rengo wage target
Rengo, Japan's largest trade union federation, typically releases the outline of its strategy for the next round of spring wage negotiations in mid-October. This year, the federation will unveil its basic plan on Oct. 19, which includes broad targets for wage increases.
These initial goals are often very ambitious. Last year, the group proposed seeking a 5 percent pay raise in spring negotiations, up from the 4 percent target set in previous years. The 5% target includes a 3% increase in base pay.
A continuation or escalation of this demand would suggest that existing upward wage pressures from the labor side will continue. Otherwise, the BOJ may be more cautious.
Late October: Kishida Fumio Package
Japanese Prime Minister Fumio Kishida, who is also pushing for sustainable wage increases to improve income distribution, may consider extending or strengthening subsidies for companies that raise wages to maintain momentum after strong growth this year. Mr. Kishida has ordered his team to come up with economic measures by the end of the month that are likely to include provisions to support wage growth, especially at small businesses.
Early December: Rengo Policy
On Dec. 1, Rengo published a detailed 29-page policy statement that formalized the 5 percent wage increase target. The document also mentions the need to address age-based pay differentials, gender equality and other workplace issues.
December to February next year: Wage plans and transactions in large enterprises
Large companies will begin announcing pay plans as early as December, and local media are likely to probe companies' intentions. These plans will help shape the upcoming talks. Some of the results of the negotiations could begin to emerge in the first few months of next year.
In December, Nippon Life Insurance was one of the insurers to unveil a big pay increase, with the company expecting its sales staff to receive a 7 percent raise. Uniqlo operator Fast Retailing Group (06288) said in early January it would raise wages by up to 40 percent, encouraging other companies to follow suit. Auto giants Toyota Motor (TM.US) and Honda Motor (HMC.US) announced their agreements with employees in late February.
Early March next year: Average salary requirements
In early March, Rengo is likely to tally the wage demands of its member unions. On March 3, the federation revealed that 2,614 unions were demanding an average wage increase of 4.49 percent, the first time in 25 years that it has exceeded 4 percent.
Mid-march: Pay deal
In about two weeks, Rengo will tally the results. On March 17 this year, the federation announced that 805 unions had received a record 3.80% wage increase. Rengo updates its results several times over the summer, and as more companies publish their results, the rate of wage growth typically slows down in later counts.
Next April: Small businesses
While the first data in March tends to reflect results for large businesses, results for small businesses and part-time workers will be available starting in April. Last year, as many as 2,000 companies with fewer than 300 employees published their pay deals as of around April 13, up from 398 in the first count.
About two-thirds of employees at Japanese companies work at companies with fewer than 1,000 employees, so the April data is an important indicator of broader wage growth trends. Rengo also began taking into account the results of part-time and temporary workers in its April statistics. Nearly 37 percent of Japanese workers are contract, part-time or temporary workers.
Next July: Final count
Rengo usually releases its final statistics in July. Rengo said on July 5 that its members had secured a 3.58 percent pay rise.
Starting in May, some gains have already started showing up in payrolls. By mid-August, more than 80 percent of the increase is expected to be reflected in wage data, according to a Bank of Japan report.
Next August: Minimum wage
Separately, the government asked prefectures to consider raising the minimum wage around mid-August. Minimum wages in Japan have remained relatively stagnant and are well below those in other developed countries.
Kishida's goal is to raise the average hourly minimum wage across the country to 1,500 yen ($10) by the mid-2030s, which would mean an annual increase of about 3.5 percent, another potential driver of higher wages.