The Bank of Japan indicated it has more confidence in much-awaited wage increases for this fiscal year, a shift that is likely to keep fueling market speculation over policy adjustments this year.
(Bloomberg) — The Bank of Japan indicated it has more confidence in much-awaited wage increases for this fiscal year, a shift that is likely to keep fueling market speculation over policy adjustments this year.
“It is highly likely that the growth rate of scheduled cash earnings will increase clearly this year,” the central bank said in its full quarterly economic report released Monday. “This is likely to underpin private consumption.”
The report suggests that Governor Kazuo Ueda’s focus is likely shifting toward sustainable wage gains, following the dovish tone he struck at his first policy meeting last week. Ueda’s BOJ clarified the importance of pay increases by stating its need in its policy guidance.
The BOJ said that the results of the wage talks so far suggest sizable gains not only among large businesses but also for smaller companies. The total wage increases of small companies with 99 or less employees was 3%, compared with 1.9% last year. Wages are also rising among part-time workers, it said, citing figures from Japan’s labor union Rengo.
“Close attention needs to be paid to whether moves to reflect price rises in wages, as observed in this year’s annual spring labor-management wage negotiations, will continue,” the BOJ said in the report.
Still, this doesn’t mean the bank must wait until next year’s results before it makes any new policy decision. Ueda clearly indicated as such at a post-meeting press conference Friday, by saying meeting outcomes will be influenced by various factors including the cost of living this year and corporate profits.
“There is a good chance that we reach the conclusion that sustainable 2% inflation will be achieved by looking at economic variables that would impact next year’s wages,” Ueda said.
Goldman Sachs and Bank of America are among those forecasting a change in the yield curve control in July as their base case. The BOJ’s quarterly report showed more than 80% of businesses will reflect the results of their wage talks by July.
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