According to media reports, Japan's largest trade union federation is about to publicly call for Japanese companies to increase their wages next year beyond the historic increase created this year. This factor can be said to significantly boost the outlook for a positive salary growth cycle that the Bank of Japan needs to see before cutting stimulus measures.
Japanese media reported on Tuesday, citing unnamed sources, that Rengo, Japan's largest labor union organization, plans to urge companies to raise wages by "at least 5%" in next year's annual salary negotiations. This goal will appear more ambitious than the one proposed before this year's negotiations, when the union sought a "maximum growth rate of about 5%".
This spring, wage negotiations between some of Japan's largest companies and workers ultimately achieved Japan's largest increase in 30 years, although the increase did not reach the initial aggressive target range. It is expected that the union will release the strategic outline for next year's salary negotiations on Thursday local time, and a more detailed negotiation framework will be released in December.
Salary Increase in Japan - Major Japanese Trade Unions Won a Historic Increase in Total Wages in 2023
The continuous increase in wages is a key factor in helping Bank of Japan Governor Kazuo Sobata achieve the anchored goal of maintaining inflation at 2%, which he has repeatedly emphasized as a prerequisite for the Bank of Japan to reduce its ultra loose monetary stimulus measures.
Asahi Noguchi, a member of the Policy Committee of the Bank of Japan, stated last week that basic wages need to maintain a growth trend of nearly 3%, which is an important trend indicator for achieving the Bank of Japan's sustainable price target.
With inflation rising and weak wages entering a growth trend, this is undoubtedly the situation that the Bank of Japan hopes to see. Bank of Japan Governor Kazuo Noda has repeatedly emphasized that he is closely monitoring Japan's income trends, believing that this is a key factor determining the likelihood of achieving sustainable inflation in the long term and may affect the Bank of Japan's future monetary policy. Regarding the monetary decision of the Bank of Japan, the market focuses on when the Bank of Japan will lift its yield curve control (YCC policy) and negative interest rate policy.
Salary growth has become the focus of attention for investors in the Japanese market, as officials from the Bank of Japan have repeatedly emphasized the need to see stronger salary growth to ensure that the trend of price increases is sustainable in order to determine whether Japan has emerged from the "deflation" that has plagued its economy for many years. Therefore, wages and inflation are important data for the Bank of Japan to consider when to tighten monetary policy.
Statistics show that the benchmark yield of Japanese corporate bonds has risen to the highest level since 2011, and investors are betting that the Bank of Japan may end its ultra loose monetary policy in the next few months, with the focus on betting that the Bank of Japan will cancel the YCC policy (yield curve control policy, which strictly controls the yield of 10-year Japanese treasury bond bonds at 0.5% -1%). SMBC Nikko predicts that the Bank of Japan may announce the end of its YCC policy and negative interest rate ultra loose policy as early as 2024.
According to media reports, the union's salary negotiation goal for 2024 will also include a 3% or more increase in basic wages. The Japanese government, led by Prime Minister Fumio Kishida, has made improving income distribution one of its core policies, so continuously increasing wages is also the top priority of the current Japanese government.
Mr. Kishida had previously requested the ruling party to formulate economic measures by the end of this month, with media reports suggesting that they may include provisions to support salary increases, especially for small businesses in Japan, which employ about two-thirds of their employees across the country.