It concerns the Bank of Japan's interest rate hike path! The harbinger of next year's "spring struggle": Japan's largest union plans to seek a 5% raise.

Japan's largest trade union federation, Rengo, will continue to push for a minimum 5% wage increase in next year's salary negotiations, while new Prime Minister Katsunobu Kato is also working to maintain the country's wage growth momentum. According to the targets outlined in the overall policy framework announced on Thursday, Rengo will seek to achieve a total compensation increase of 5% or higher in negotiations that began later this year, including a 3% increase in base wages. Similar targets were set in last year's annual negotiations, eventually achieving an average overall increase of 5.25% by 2025. These targets will be officially confirmed in late November. Failure to maintain wage growth momentum in Japan will have implications for Katsunobu Kato's tenure and the policy direction of the Bank of Japan. As inflation continues to impact Japanese households, stagnant real wages could lead to more dissatisfaction among the public, and the Bank of Japan may struggle to maintain the pace of its tightening policy. Despite securing the largest nominal wage increase in over 30 years in recent negotiations, actual wages have not kept up with this increase. Only two months in the past 12 months have seen an increase in real wages, due to persistent inflation. Earlier this week, Katsunobu Kato instructed his cabinet to create an economic plan that will include measures to promote wage growth and alleviate the pressure of rising prices. According to the directive, the plan is likely to include measures to enhance the profitability of small businesses and promote investments to reduce labor costs. Minoru Kiuchi, the Minister of Economic Growth Strategy responsible for overseeing the economic plan, stated on Wednesday that the Japanese government must continue to support families until real wages are significantly increased. The wage growth gap between large and small businesses is widening, indicating a slowdown in wage growth trends outside of Japan's core companies as smaller subcontractors struggle to pass on higher costs to customers. According to a Teikoku Databank report, in July, less than 40% of increased costs were passed on from Japanese suppliers to customers, the lowest level since the firm began conducting this survey. Rengo's goal for small and medium-sized enterprises is to increase employee wages by at least 6%. In its latest framework, the union urges smaller unions to review the results of the past few years and push for further improvements. Last year, under the same goal, the average wage increase for smaller enterprises was 4.65%. Sustained wage growth remains a key focus for the Bank of Japan. The Bank of Japan considers wage increases crucial for achieving a virtuous economic cycle, which is a necessary condition for continuing its monetary tightening policy. Bank of Japan Governor Haruhiko Kuroda stated earlier this month, "Mechanisms for moderate increases in wages and prices will continue." He reiterated that if the economy and prices develop as expected, the Bank will gradually raise interest rates. The Bank of Japan will convene a policy meeting next week, and only 10% of surveyed economists believe there will be a rate hike. Despite calls from the Japanese government and trade unions, the next round of wage negotiations faces many challenges. One of these challenges is the higher tariffs imposed by U.S. President Trump, which has squeezed the profit margins of exporters. With the U.S. imposing higher tariffs, the outlook for the automotive industry looks bleak, signaling concerns for the industry that is usually a barometer in annual wage negotiations. According to the International Monetary Fund, Japanese automakers have reduced car prices in North America by about 20% to absorb additional costs, and are facing billions of dollars in losses due to the trade war, threatening their ability to provide adequate compensation to their employees. With many challenges ahead, economists generally expect wage increases in the upcoming negotiations to be lower than the previous year. A survey by the Japan Economic Research Center earlier this month showed that approximately 36 economists believe that the average overall increase in the upcoming wage negotiations will be 4.81%.