Salary increases are expected to reach a new high! Japan's largest labor union organization is seeking a pay raise of 6.09% this year.

Japan's largest trade union organization Rengo stated on Thursday that its member unions are seeking an average wage increase of 6.09% this year, surpassing last year's request, which was already the highest in 30 years. This could mean that Japan's annual wage negotiations may once again see significant wage increases. The current average wage increase demand exceeds Rengo's target of at least 5% wage increase by 2025, which includes a minimum 3% increase in base wages. Rengo's data shows that last year, Japanese companies agreed to increase wages by an average of 5.1%, the largest increase in 33 years, compared to 3.5% the previous year. At this time last year, Rengo's member unions had requested an average wage increase of 5.85%. Japanese Prime Minister Fumio Kishida believes that wage negotiations are crucial for Japan, the world's fourth-largest economy. Comprehensive wage increases are also a prerequisite for the Bank of Japan to continue normalizing monetary policy. As the Bank of Japan considers future interest rate hikes, wage data remains a key indicator of concern because the Bank of Japan's goal is to achieve a benign economic cycle of rising wages and spending stimulating demand-driven price increases. Negotiations between Japan's major corporate management and unions regarding wage levels for 2025 typically conclude in mid-March and take effect several months later. The market is closely monitoring the outcome of this year's wage negotiations to assess the sustainability of wage growth. Multiple factors reinforce expectations of rate hikes by the Bank of Japan According to a survey released in mid-February by the Japanese market research company Teikoku Databank, about 61.9% of the 11,000 Japanese companies surveyed plan to increase employee wages in the new fiscal year, which is the highest proportion ever recorded as companies struggle to recruit and retain employees. Additionally, about 56% of the surveyed companies indicated plans to raise base salaries, the highest level tracked by Teikoku Databank since 2007. Although the survey did not detail the extent of wage increases planned by Japanese companies, it indicates that the momentum of wage growth in Japan is continuing and will have a broader impact. This is undoubtedly a positive signal for the Bank of Japan. At the same time, based on optimistic assessments of wage growth and inflation prospects, in a survey conducted from February 12 to 18, all 61 economists surveyed expect the Bank of Japan to maintain interest rates at their March meeting. However, 19 economists believe that there will be a rate hike of at least 25 basis points to 0.75% in the second quarter; more than 65% of respondents (38 out of 58) predict that the Bank of Japan will hike rates to 0.75% in July or September. In addition to wage growth, other important factors driving expectations of rate hikes by the Bank of Japan include economic data indicating rising inflation, as well as hawkish statements from Japanese policymakers. Bank of Japan Deputy Governor Shinichi Uchida reiterated on Wednesday the Bank of Japan's stance on continuing to raise policy rates, although he hinted that the Bank of Japan is unlikely to hike rates at consecutive meetings, indicating a low likelihood of a rate hike in March. Furthermore, some analysts believe that US President Trump's focus on addressing trade imbalances is favorable for the Bank of Japan to hike rates, as this would weaken Japan's historically strong resistance to yen appreciation and rate hikes, leading the Japanese government to take a more lenient stance on the issue of yen appreciation.