MNI INSIGHT: Initial Wage Awards By Big Firms Heartens BOJ

Bank of Japan officials are heartened by initial wage hikes at major firms, but are uncertain if they will filter to smaller firms, which is key to boost consumer spending and hit sustained price gains, MNI understands.

Smaller firms account for more than 90% of all businesses in Japan, and have been impacted by higher energy and imported commodity costs that are hard to transfer to retail prices, though officials say there may be a temporary rise in consumer prices above 2% in, or around, April.

But pay increases by major firms rose above 2% for this year, with the average wage hike JPY2,031, just short of the recent highest level of JPY2,081 reached in 2015, according to data by Japan Council of Metalworkers’ Unions, formed by the automobile and electric machinery industries, on Wednesday.

Now the focus for the BOJ is whether wages hikes at smaller firms go above the 1.86% level seen in 2021, which was the first time in eight years that wages fell below 2%. Higher wages are vital for the BOJ’s target of stable 2% inflation and to trigger a virtuous economic cycle.

The BOJ estimates household "forced savings" of JPY20 trillion on a cumulative basis for 2020 (excluding the amount of special cash payments put aside for savings), for around 7% of potential disposable income that were used as some lockdown conditions were eased in the fourth quarter. The BOJ said when new restrictions are lifted this year, spending from these funds may again be used, but not have the same potential impact as other prices have gained.

The BOJ releases its latest policy views on Friday, see: MNI STATE OF PLAY: BOJ Policy To Highlight Downside Econ Risks.