Japanese Automobile Union warns: If the central bank raises interest rates this week and the Japanese yen appreciates sharply, it will jeopardize next year's "spring wage negotiations."

The head of the Japanese automobile industry union expressed concern that if the central bank, as widely expected by the market, raises the benchmark interest rates on Friday, it could affect companies' ability to increase wages in the next fiscal year. Akihiro Kaneko, chairman of the Japan Automobile Workers Union Federation, said in an interview on Tuesday: "If the decision of the Bank of Japan leads to a significant appreciation of the yen after Friday, it could affect the confidence of companies." He added: "Sharp exchange rate fluctuations would make it more difficult for exporters to implement wage increases, as expected profits would disappear." At the same time, he pointed out that if the changes are moderate, companies should be able to adapt. Kaneko made these comments as the Bank of Japan's Monetary Policy Committee prepared to meet, with the market closely monitoring salary developments in the automotive industry. It is expected that the Bank of Japan will raise the policy interest rates to 0.75% at the end of the meeting on Friday, the highest level in 30 years. After the October meeting, Bank of Japan Governor Haruhiko Kuroda expressed that he was monitoring the "preliminary momentum" of next year's wage negotiations, with industries affected by tariffs being a particular focus. A report released by the Bank of Japan on Monday showed further progress on wages, but Kaneko stated that authorities should wait for more convincing signs. Kaneko said: "If the Bank of Japan is looking for 'preliminary momentum', that may mean waiting until February or March of next year." He continued, "Even companies might change their minds based on the situation a month later." In the automotive industry, major companies usually announce their salary agreements in mid-March after unions present their demands in mid-February. Following this week's widely expected rate hike, most economists predict that the Bank of Japan will gradually tighten its policy at a pace of about every six months, with the midpoint forecast indicating a terminal interest rate of 1.25% for the current cycle. Kaneko stated that gradual increase to around 1% would be consistent with sustainable growth if the inflation rate remains around 2% and exchange rate fluctuations are moderate. Kaneko's union released a policy document last week outlining wage negotiation goals that will peak in March, stating that they will seek a minimum monthly wage increase of 12,000 yen (77.50 dollars). By using this figure as a minimum standard rather than a reference point, the union's stance has been slightly strengthened compared to last year. Last year, the union achieved a pay raise of 9,520 yen or 3.58%, the highest level since 1996. Like other unions, Kaneko's organization will focus on narrowing the wage gap between large and small companies in the upcoming salary negotiations. According to union statistics released in September, in the previous round of negotiations, employees in companies with fewer than 300 people saw an average wage increase of 8,688 yen, significantly lower than the 12,831 yen gained by employees in companies with 3000 or more employees. The new wage targets indicate that despite adverse factors such as increased tariffs, workers intend to keep pressure on employers. Due to the higher costs caused by tariffs, Japanese automakers lowered the prices of cars sold in North America by nearly 20% earlier this year to remain competitive. According to company financial reports, the impact of tariffs on the seven major automakers is expected to total 2.5 trillion yen by the fiscal year ending in March of next year. Kaneko stated that the impact of higher U.S. tariffs may be partially offset by stronger domestic demand. Prime Minister Naoto Kan plans to abolish gasoline taxes, which will help support domestic car demand and potentially stabilize automakers' profit base. Kaneko generally supports Naoto Kan's growth strategy. Last month, the government introduced its largest economic stimulus package since the easing of pandemic restrictions, including about 980 billion yen in measures to promote wage growth (mainly targeted at small and medium-sized enterprises) and various measures to stimulate growth. However, Kaneko, who previously led the Toyota Motor Corporation union, warned that excluding large companies from tax incentives aimed at wage increase companies ahead of crucial salary negotiations could affect business sentiment. He also urged the government to strengthen measures to increase productivity, including support for digital investment, to help maintain the country's global competitiveness. With the start of the new year approaching, the rhetoric of the union leader has become stronger. Kaneko said: "This is the fourth year since we first strengthened our actions, and there is a risk that it may become routine rather than focused." He continued, "In this sense, we hope to enhance momentum by emphasizing the need for wage increases both internally and externally."