The first results of annual wage negotiations in Japan have resulted in a new record increase since 1991, which could prompt the Bank of Japan (BoJ) to begin a gradual process of monetary normalization as early as next week.
More than 770 union members of the Rengo trade union confederation have at this stage obtained wage increases of 5.28%, this organization announced on Friday. An average increase of 3.8% was obtained last year during the same period, which was already a record since 1994.
The unions demanded on average an increase of 5.85% this year, but Rengo’s objective of obtaining at least 5% was therefore met.
Between the years 1990 and 2023, wages increased very little in Japan, due to sluggish inflation and economic growth, a context which has pushed the BoJ to resort to an ultra-accommodative monetary policy since 2013.
In recent decades, Japanese unions have also preferred to defend job security rather than trying to obtain significant wage increases.
But inflation has suddenly awakened in Japan since 2022, with the surge in the prices of oil and other raw materials after the Covid-19 pandemic and the start of the Russian invasion of Ukraine.
The increase in consumer prices in the country (excluding fresh products) reached 3.1% on average in 2023, a record since 1982. And it remains relatively tenacious (2% in January, according to the latest official figures available).
The BoJ, which aims for sustainable inflation of 2%, being fueled by demand rather than external factors, has preferred to maintain for the moment its ultra-accommodating monetary policy, which includes a negative key rate of -0.1 % since 2016.
The gap that has widened between its policy and the drastic monetary tightening carried out in the United States and Europe since 2022 has caused the yen to fall against the dollar and the euro.
If the weakness of the yen has positive aspects, particularly for large Japanese exporting companies and the Tokyo Stock Exchange, it further weakens the purchasing power of Japanese households, and therefore domestic consumption, which is counterproductive for the BoJ’s inflation target.
For several months, its leaders have insisted that they were waiting in particular to see the preliminary results of these spring salary negotiations (shunto).
The BoJ could therefore decide to act following its monetary meeting next Tuesday. But it could also decide to wait a little longer, while waiting for new macroeconomic indicators.
In any case, the BoJ has already warned that it will change its monetary policy in an extremely gradual manner, so as not to undermine the very fragile Japanese economic situation and avoid causing a shock on the financial markets.