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Japan’s Salaries Surge Could See BoJ Turn to Tightening

Another year of consistent wage growth would force the Bank of Japan to consider ending its controversial monetary stimulus

People walk in front of the Bank of Japan building in Tokyo (Reuters file photo).


Japan’s big employers are set to continue bumping up worker salaries next year, a trend which could spark a long-awaited shift from stimulus to tightening by the country’s central bank.

Early indications from businesses, unions and economists suggest the labour and cost pressures that set the stage for this year’s pay hikes – the largest in more than three decades – will persist heading into next year’s key spring wage talks.

The head of major beverage maker Suntory Holdings Ltd, for example, plans to offer employees average monthly pay hikes of 7% in 2024 for the second straight year, to retain talent in a tight labour market and offset rising inflation.


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Meiji Yasuda Life Insurance Company intends to raise annual pay by 7% on average for about 10,000 employees from next April, while electronics retailer Bic Camera is set to raise 4,600 full-timers’ pay by up to 16%.

“What’s going on is a big paradigm shift away from deflation and towards inflation,” Suntory Holdings CEO Takeshi Niinami, who also sits on Prime Minister Fumio Kishida’s top economic advisory council, said.

“Given the fast-changing landscape, I believe those who move fast [with wage hikes] should become competitive.”

Those announcements come as Kishida heaps pressure on companies to hike pay to offset the pain on households from rising living costs.

The back-to-back annual pay bumps would also provide Bank of Japan Governor Kazuo Ueda with one of the pre-conditions he needs to dismantle the extreme monetary stimulus of the past decade – sustainable wage growth.

“A combination of the chronic labour crunch and stubborn inflation will lead next year’s wage negotiations to result in the same or even higher pay from this year,” said Hisashi Yamada, labour expert and professor of Hosei University.

OECD data shows average wages have barely risen in Japan for about past 30 years as chronic deflation and prospects of prolonged low growth discouraged firms from raising pay.

The tide began to shift after supply constraints caused by the pandemic and the Ukraine war led to sharp rises in raw material prices, forcing firms to pass on higher costs to consumers.


BoJ’s Inflation Target Breached

With inflation having held above the BOJ’s 2% target for more than a year, companies have faced unprecedented pressure to compensate employees with pay hikes to retain and lure talent.

A demand made this year by Rengo, Japan’s largest trade union confederation, for pay hikes of “around 5%” resulted in average wage hikes of 3.58% among major companies. Rengo has said it will demand a pay hike of “5% or higher” next year.

Another major union UA Zensen, which covers service-sector workers and part-timers, said it would demand a pay 6% rise next year, in line with this year’s demand.

Six out of 10 economists in a Reuters poll expect major firms’ pay hikes in 2024 to exceed this year’s.

“A combination of inflation, tight labour market and corporate profits will blow a tailwind to keep up the momentum for wage hikes,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “More and more companies are also able to pass on higher costs in supply chain.”

While lifting wages has been an elusive goal for Japanese policymakers for decades, recent cost-of-living pressures have added urgency to the task.

With his approval ratings plunging, Kishida has pledged to achieve another year of robust pay hikes and avoid the economic stagnation Japan saw in the late 1990s and early 2000s.

The prime minister last week called on the business community to beat this year’s wage growth in 2024.


Uneven Sector Hikes Recorded

Kishida has offered subsidies and tax incentives for firms that carry out bold pay hikes and plans to allow loss-making SMEs who don’t pay taxes to benefit from tax breaks later on. The premier also aims to give SMEs more bargaining power in negotiations with bigger clients.

Another year of solid wage growth would also help the BOJ pursue an end to its controversial monetary stimulus. Markets are betting the central bank could end negative interest rates by around April, when it gets more clarity on wages.

The BOJ’s quarterly tankan business survey in December and wage talks between Japan’s largest business lobby and Rengo in January may offer even earlier clues.

The key, however, would be whether wage hikes broaden to smaller firms and those in the regional areas.

A report by the BOJ’s regional branch managers in October warned wage hikes remained uneven among sectors with many firms undecided on next year’s pay increments.

In Saitama prefecture, north of Tokyo, Nitto-Seimitsu Kogyo Co, a small manufacturer of auto-part tools that has 113 employees, is raising wages by around 2% every year, but won’t be able to pay more.

“I want to raise wages more for our employees to help our workers cope with high inflation but 2% is our limit,” said factory boss Keita Kondo.


  • Reuters with additional editing by Sean O’Meara


Read more:

Yen, Inflation Stresses ‘Could Force BoJ to Tighten This Year’

BOJ Not Afraid of Cost of Phasing Out Stimulus, Ueda Says

BoJ Dismiss Rumours Ultra-Easy Policy Will be Ditched

BOJ to Hold Workshop for Ueda’s Review of Monetary Easing



Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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