Japan’s largest union group yesterday announced stronger-than-expected annual wage deals, a result that could fuel already intense speculation that the Bank of Japan (BOJ) would next week raise interest rates for the first time since 2007.
The Japanese Trade Union Confederation, known as Rengo, said its members have so far secured deals averaging 5.28 percent, a figure that far outpaces the initial 3.8 percent tally of a year ago.
Many of Rengo’s affiliated groups had already announced agreements to hike wages by 5 percent or more.
Photo: Bloomberg
Base pay deals averaged 3.7 percent in the first tally of results, compared with 2.33 percent a year earlier, it added.
The stronger-than-expected result might be enough to convince the BOJ to end the world’s last negative rate on Tuesday next week, instead of waiting until April. The central bank has long pursued a goal of achieving sustainable 2 percent inflation. A key component of that goal is setting in motion a virtuous cycle in which wage growth feeds into demand-led price gains.
“This clears the last hurdle for the BOJ and I think it will scrap its negative rate next week and make a shift toward policy normalization,” said Taro Saito, head of economic research at NLI Research Institute. “If they stand pat now, markets will get volatile and the yen is likely to plunge.”
While yen strengthened after Kyodo News reported that the figure would top 5 percent ahead of the release, the currency reversed gains amid broad strength in the US dollar.
Its muted trading was also an indication that market players are yet to be entirely convinced that the BOJ would move on Tuesday.
“The market has largely priced in the strong outcome,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc in Tokyo.
“Rengo’s figures are eye-popping. Although the results are still preliminary, now the odds are high for Japan’s economy to finally have the solid wage growth that has long been a missing piece for the BOJ since it started its experiment of massive monetary easing,” Bloomberg economists said.
The results show that a combination of bumper profits at companies along with a labor shortage, ongoing inflation and government pressure has helped convince boardroom executives across Japan they need to raise pay by more than in past years.
Toyota Motor Corp, Japan’s biggest company by market capitalization, said it agreed to its union’s pay demands in full with record raises, and a slew of unions announced results on Wednesday that exceeded last year’s gains.
Some executives have also bought into the idea that Japan as a nation has to do more to escape from its decades of deflation.
“To keep the current momentum, we have to keep raising wages and make people feel, ‘Wow, we can consume,’” Suntory Holdings Ltd CEO Takeshi Niinami said. “The key thing definitely is that we have to finish the deflationary spiral.”
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