Japan’s current inflation rate of 4% is the highest it has been in the last 40 years. Major Japanese companies have proposed substantial wage growth for their employees in response. What’s going on in Japan’s labor market ?
① Why are Japanese corporates adjusting wages for inflation? Despite high inflation, wage growth in Japan has not kept pace, leading to a decline in real wages. In the past, low inflation provided little motivation for companies to increase wages. However, with the current high inflation rate, companies are incorporating inflation into their wage negotiations to attract and retain competent workers. This change clearly indicates that Japan is emerging from deflation.
② What does the future hold for wages and inflation in Japan? The outcome of the annual spring wage negotiation, which is critical in determining base salary growth for full-time employees, is expected to result in wage hikes surpassing 3%. This will be the highest increase since the early 1990s and will likely lead to higher service inflation.
③ What is the impact on the Bank of Japan (BoJ’s) monetary policy ? Japan's labor market and inflation are closely linked and have important implications for monetary policy. The BoJ recently took its first step towards monetary policy normalization in December. We believe that such wage growth will lead to further normalization of BoJ’s monetary policy, such as abandonment of yield curve control.
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Japan’s current inflation rate of 4% is the highest it has been in the last 40 years. Major Japanese companies have proposed substantial wage growth for their employees in response. What’s going on in Japan’s labor market ?
① Why are Japanese corporates adjusting wages for inflation?
Despite high inflation, wage growth in Japan has not kept pace, leading to a decline in real wages. In the past, low inflation provided little motivation for companies to increase wages. However, with the current high inflation rate, companies are incorporating inflation into their wage negotiations to attract and retain competent workers. This change clearly indicates that Japan is emerging from deflation.
② What does the future hold for wages and inflation in Japan?
The outcome of the annual spring wage negotiation, which is critical in determining base salary growth for full-time employees, is expected to result in wage hikes surpassing 3%. This will be the highest increase since the early 1990s and will likely lead to higher service inflation.
③ What is the impact on the Bank of Japan (BoJ’s) monetary policy ?
Japan's labor market and inflation are closely linked and have important implications for monetary policy. The BoJ recently took its first step towards monetary policy normalization in December. We believe that such wage growth will lead to further normalization of BoJ’s monetary policy, such as abandonment of yield curve control.