Volkswacht Bodensee - Eyes on Bank of Japan as unions announce wage hikes

Wage growth has been sluggish in Japan for decades, and the government partly blames this for the economy's woes.

But this year members of Japan's largest trade union, Rengo, have demanded their highest average pay increase since 1994 in annual spring wage talks.

Rengo reports preliminary results of the bargaining later Friday, with hopes high after major firms including Toyota and Panasonic ceded fully to their workers' pay demands.

Its announcement will be closely watched by economists looking for signs that the Bank of Japan could soon scale back its long-standing monetary easing policies.

The bank's governor Kazuo Ueda has called the spring negotiations an "important point" in deliberations over when and how to make the shift.

Central banks worldwide have raised interest rates in recent years to tackle soaring inflation, but the BoJ is an outlier -- keeping in place its negative interest rate and other measures designed to boost the stagnant economy.

Its decision to stick with these policies has sharply weakened the yen against the dollar.

Even so, the bank has stressed that it needs to see a "virtuous cycle" of rising wages and sustained, demand-driven inflation of two percent before changing its ways.

The bank will announce its policy decision on Tuesday.

"Rengo's first tally of responses... should greatly encourage the Bank of Japan to revise its policy at its March meeting," said BNP Paribas chief economist Ryutaro Kono.

- 'Strong trend' -

This time last year Rengo announced an average pay rise of 3.8 percent, or 11,844 yen ($80) per month -- its best result since comparative figures became available in 2013.

And this year, its members have called for an average hike of 5.85 percent.

Prime Minister Fumio Kishida has urged business leaders to raise wages faster than inflation.

"I'm encouraged to see a strong trend of wage increases, even greater than last year," he told a meeting of business and union leaders on Wednesday.

Nissan and Mitsubishi Heavy Industries are among the big Japanese companies that have given unions everything they asked for this year.

Nippon Steel and Suzuki have even reportedly offered more than their unions had demanded.

The wage negotiations are "looking promising" and Japan's "chronic labour shortage supports the trend", said Nobuko Kobayashi, Asia-Pacific strategy execution leader for consulting firm EY.

"Steady and sustained wage growth in tandem with inflation around two percent year-on-year will signal Japan's exit from decades-long deflation," she told AFP.

Japan narrowly avoided a technical recession in the second half of 2023, but economists say the number-four economy remains in the doldrums.

National Australia Bank's Gavin Friend said on the NAB Morning Call podcast Thursday that "everybody's now waiting" for the Bank of Japan to lift rates.

"Really, what the BoJ is looking for is a significant breach or move higher than last year's first reading on the Rengo survey," he added.

L.Maurer--VB