Japanese "Shunto" presents good news: Wage growth has exceeded 5% for three consecutive years, a rare trend in 30 years, and supports the central bank's interest rate hike.

The annual spring labor-management negotiations in Japan ("Spring Struggle") recently concluded, with the average wage increase for this round surpassing 5% for the third consecutive year. This not only confirms the resilience of the country's economy but also strengthens market expectations that the Bank of Japan will continue to raise interest rates. According to the final statistics released by Japan's largest labor union organization Rengo on Friday, the average wage increase for its 5368 member companies reached 5.01%. Although this number is slightly lower than last year's record of 5.25%, it has achieved the organization's set goal of 5% for the third consecutive year - marking the first time in Japan since 1989-1991 that such a sustained wage growth trend has occurred. A Japanese government official stated during a press conference on Friday that this achievement is significant and marks a solid step towards the normalization of wage increases in Japanese society. Rengo currently represents about 7 million workers, accounting for approximately 10% of Japan's workforce. The organization released the initial statistics in March this year and has revised the numbers upwards multiple times as more data from companies came in. Usually, the final figure tends to be adjusted downwards as more small and medium-sized enterprises are included in the statistics. In these negotiations, the base wage increase was 3.5%, meeting the union's goal of at least 3%. A survey of economists conducted in March indicated an overall wage increase of 5.05% with a base wage increase of 3.5%. This negotiation result further confirms the Bank of Japan's assessment that the "virtuous cycle of wages and prices" remains intact, providing a basis for continuing its path of interest rate hikes. Currently, market expectations show a probability of about 93% for the Bank of Japan to raise interest rates again by December, and recent economic data has strengthened the possibility of preemptive action. Despite facing multiple headwinds, this year's wage negotiations have achieved solid results. Companies have had to deal with challenges such as supply chain disruptions caused by the situation in Iran, rising import inflation due to the weak yen, and increased financing costs from the Bank of Japan's previous interest rate hikes. Especially since mid-March, these challenges have intensified, meaning that small and medium-sized enterprises that usually complete negotiations in April and later have faced greater impacts than larger companies that wrapped up negotiations earlier. Data shows that in unions with less than 300 members, the average wage increase was 4.69% with a base wage increase of 3.51%. Moreover, this wage agreement is expected to provide support for the steady expansion of the Japanese economy. If the current economic expansion continues, it will become Japan's longest post-war growth cycle. Robust corporate profits and a continuing labor shortage have led to companies continuously raising wage levels in the battle for talent. However, wage increases may not necessarily a complete boost in purchasing power - if companies pass on the rising costs of labor, imports, and energy to consumers, prices may accelerate. While actual wages in Japan have been rising for four consecutive months, benefiting from government subsidies to alleviate inflationary pressures, the sustainability of this trend remains uncertain. It is worth noting that compared to the previous government, the current government led by Prime Minister Taro Aso still emphasizes economic growth but has reduced the emphasis on wage targets. In the growth strategy draft released last month, the government promised to raise the national average minimum hourly wage to 1500 yen "as soon as possible, but no later than the first half of the 2030s." This essentially delays the timeframe set forth by former Prime Minister Shinzo Abe to achieve this goal within the current decade.