The Bank of Japan expects wage increases to expand, is the rate hike imminent?

The Bank of Japan said on Thursday that many Japanese companies believe it is necessary to continue to raise wages due to structural labor shortages, indicating that the conditions for a recent rate hike are gradually being met. The central bank stated that some companies are already studying wage increases for this year, indicating that they are becoming more confident that the significant wage growth seen last year will continue. The Bank of Japan has repeatedly stated that sustained and widespread wage increases are a prerequisite for further tightening monetary policy. In a statement regarding the economic health of certain regions, the Bank of Japan added that due to companies seeking to raise wages, prices have sharply risen in many areas of Japan. The Bank of Japan stated that some companies have not yet decided how much to increase wages this year, while other small businesses are still cautious about wage increases, as rising costs will affect profits. "On the other hand, some companies are already discussing the details of wage hikes. Overall, there are many reports indicating that many companies believe it is necessary to continue raising wages," the bank said in a statement released after its quarterly meeting of regional branch managers. This survey result is one of the factors that the Bank of Japan will carefully review at its next policy-setting meeting on January 23 and 24, with some analysts expecting the bank to raise rates from the current 0.25%. The Bank of Japan raised its economic assessment for two of Japan's nine regions and maintained its view on the remaining regions, stating that they are either recovering or showing moderate recovery. The Bank of Japan ended its negative interest rate policy in March 2024 and raised its short-term rate target to 0.25% in July of the same year, as the bank believed Japan was on track to achieve its 2% inflation target. At a press conference held after the Bank of Japan decided to maintain stability in interest rates last month, Governor Haruhiko Kuroda said he hopes to wait for more data to determine whether wage increases will spread to more companies in this year's negotiations between businesses and labor unions. The chairman of a large business lobbying group stated on Tuesday that the average wages of large Japanese companies may increase by about 5% by 2025, remaining flat compared to last year. The key is whether wage increases will spread to small businesses in remote areas. Wage data released earlier on Thursday showed that base wages (regular wages) rose by 2.7% in November, the fastest pace since 1992. A survey last month showed that all respondents expect the Bank of Japan to raise rates to 0.50% by the end of March.