Investors trying to gauge if wage increases in Japan will prompt a central bank policy move this year are keeping a close eye on a report from the country’s largest union federation Friday.
(Bloomberg) — Investors trying to gauge if wage increases in Japan will prompt a central bank policy move this year are keeping a close eye on a report from the country’s largest union federation Friday.
The Rengo data put a handy percentage figure on average wage gains, offering investors an easier-to-grasp number than the slew of releases to date by other unions and companies. Reports from firms including Hitachi Ltd., Panasonic Corp. and Toshiba Corp. already indicate that pay raises are the largest in years.
Economists expect the spring wage negotiations to result in average wage gains of 2.95%, according to a Bloomberg survey earlier this month. That would be the highest since 1994, compared against labor ministry data. Last year’s Rengo figures showed average hikes of 2.07% and covered 4,944 unions representing around 4% of the working population.
Departing Bank of Japan Governor Haruhiko Kuroda has said he needs to see sustained wage increases of 3% to ensure stable inflation of 2%, but he’s also said the central bank will be looking at more than one data point to judge the trend.
“Large pay increases are one of the key reasons for inflation to become sustained at the BOJ’s 2% target,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore. “The central bank will need to see clear evidence that wages and consumer prices are rising at levels that will keep Japan out of the three decades of weak inflation or deflation its economy has suffered.”
The release comes with speculation still simmering that the BOJ will pare back its stimulus, pushing yields higher and boosting the coffers of investors betting against Japan’s bonds. A looming change of guard at the top of the bank, bond market pressure and inflation at a four-decade high are feeding expectations of change.
The difficulty for market players is unpicking whether the wage gains will be enough to push the BOJ’s needle. Many of them are focusing on June as the most likely month for a near-term policy tweak under incoming Governor Kazuo Ueda, according to the survey.
Economists point out that increases in base pay are more significant for generating a cycle of wages and prices. Bloomberg’s survey showed they expect base pay to increase 1.1% this time around, compared with average gains of 0.5% since 2015.
A Rengo base pay figure below 1% would fall short of current expectations, while something over 1.5% would point more clearly to a strong upward shift in wages.
“A solid wage outcome from the wage talks will help bolster the case for the Bank of Japan to exit its ultra‑easy monetary policy in coming months, thereby supporting the yen and Japanese government bond yields,” wrote Kristina Clifton, an economist at Commonwealth Bank of Australia in a note Wednesday.
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