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Japan: strong wage growth in 2024. Will this allow a change in BoJ policy?

Big Japanese companies are poised to follow up this year's extraordinary wage increases with another round in 2024, which should help boost household spending and give the country's central bank, the BoJ, the conditions it needs to finally reverse the massive monetary stimulus. Or at least that's the hope of economists who, until now, have supported bets on rising Japanese rates, as reported by Reuters .

Early indications from businesses, unions and economists suggest that the labor and cost pressures that set the stage for this year's pay rises – the biggest in more than three decades – will persist until the main spring wage talks in next year.

The CEO of major drinks maker Suntory Holdings Ltd, for example, plans to offer employees average monthly salary increases of 7% in 2024 for the second consecutive year, to retain talent in a tight labor market and offset rising inflation .

M eiji Yasuda Life Insurance Company plans to raise average annual pay by 7% for around 10,000 employees starting next April, while electronics retailer Bic Camera is set to increase the pay of 4,600 full-time workers by up to 16%.

“What is happening is a big paradigm shift from deflation to inflation,” Takeshi Niinami, CEO of Suntory Holdings, who also sits on Prime Minister Fumio Kishida's top economic advisory council, told Reuters.

“Given the rapidly changing landscape, I believe those who move fast (with salary increases) should become competitive.”

These announcements come as Kishida pressures companies to raise wages to offset family suffering from rising costs of living, while also improving his own political popularity through more widespread prosperity,

Real Japanese wage trends compared with South Korea and the USA

Consecutive annual wage increases would also provide Bank of Japan Governor Kazuo Ueda with one of the preconditions he needs to dismantle the extreme monetary stimulus of the last decade: sustainable wage growth.

“A combination of the chronic jobs crisis and persistent inflation will cause next year's wage negotiations to result in equal or even higher pay starting this year,” said Hisashi Yamada, a labor expert and professor at Hosei University.

OECD data shows that average wages have barely risen in Japan over the past 30 years, as chronic deflation and prospects of prolonged, low growth have discouraged companies from raising wages.

Japan salary increases over time

That began to change after supply constraints caused by the pandemic and the war in Ukraine led to sharp increases in commodity prices, forcing companies to pass on higher costs to consumers.

With inflation holding above the BOJ's 2% target for more than a year, companies have faced unprecedented pressure to compensate employees with pay rises to retain and attract talent.

The demand made this year by Rengo, Japan's largest trade union confederation, for wage increases of "around 5%" led to average wage increases of 3.58% among major companies. Rengo said he will request a pay increase of “5% or more” next year.

Sustained wage growth would allow the public debt to be supported by the savings of the Japanese and no longer by the Central Bank which, at least in the plan of many economists, could abandon the policy of low rates and revise them upwards: moreover the interests paid would return to the Japanese and would bear the expense. We will see if BoJ governor Ueda thinks like these economists or if he will, in any case, prefer to keep rates under control. In the meantime, however, there is no serious inflation on the horizon.

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The article Japan: strong wage growth in 2024. Will this allow a change in BoJ policy? comes from Economic Scenarios .

This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/giappone-forte-crescite-salariali-nel-2024-questo-permettera-un-cambio-di-politica-della-boj/ on Tue, 21 Nov 2023 08:00:03 +0000.