Japanese basic wages in November increased by the highest percentage in 32 years, boosting the prospect of a rate hike by the Bank of Japan.

Japan's basic wages have seen the largest year-on-year increase in 32 years, indicating a positive economic cycle is emerging, which could lead to further interest rate hikes by the Bank of Japan in the near future. Data released on Thursday by Japan's Ministry of Health, Labour and Welfare showed that basic wages in Japan increased by 2.7% year-on-year in November; nominal wages rose by 3%, exceeding economists' expectations of 2.7%. A more stable measure of wage trends revealed that wages for full-time workers increased by 2.8% year-on-year, maintaining a growth rate of 2% or more for the 15th consecutive month. However, the disappointing aspect is that real cash earnings declined by 0.3% year-on-year for the fourth consecutive month, partly due to inflation outpacing wage growth. The expansion of price increases in November was attributed to the government's cessation of subsidies for utility bills, which pushed up energy costs. The relatively stable trend in wage growth may intensify speculation regarding the Bank of Japan's imminent interest rate hike, including at the policy meeting scheduled for later this month. Since BOJ Governor Haruhiko Kuroda made dovish remarks at a press conference following the rate decision in December last year, market participants have been leaning towards expecting the BOJ's next policy adjustment to come later. Overnight swaps on Thursday indicated a 46% likelihood of a rate hike by the BOJ in January. Kuroda previously stated that he would like to see more data, particularly on the sustainability of wage growth, before the BOJ takes further tightening measures. This has drawn attention to the progress of spring wage negotiations. In March last year, the BOJ raised rates for the first time in 17 years. Not long before that, the largest Japanese labor union federation, Rengo, announced that its members' wage increases had reached the highest level in over 30 years. This year, Rengo plans to release preliminary wage negotiation results on March 14 and update them later, including results from smaller companies. The BOJ's policy meeting in March will be announced five days later. Rengo's goal is for wages in all companies to increase by at least 5%, with slightly higher targets for small and medium-sized enterprises at 6%. Some individual companies have shown encouraging signs, including retail giant AEON STORES and insurance company Nippon Life Insurance, reportedly planning to raise wages for some employees by at least 6%. The ongoing tight labor market in Japan may continue to pressure companies to raise wages to attract and retain talent. Even before the BOJ's January meeting, events may provide more insights into the latest wage trends. The BOJ plans to release its latest regional economic report after a branch manager meeting on Thursday evening. In addition, Deputy Governor Ryozo Himino is scheduled to speak to local business leaders in Yokohama next week.