MNI POLICY: BOJ Wants FY25 Base-Pay Hikes Above 3%
MNI (TOKYO) - The Japanese economy must maintain base-pay increases above 3% to strengthen services and support price rises if the economy is to meet the Bank of Japan’s 2% price target and provide a solid foundation for continued rate hikes next year, MNI understands.
While BOJ officials remain confident the labour shortage will support base-pay hikes in fiscal 2025 starting on April 1, they are concerned increases will fall below 3% as inflation moderates and reduces pressure on wages.
Base-pay hikes averaged about 3.56% this fiscal year. While average core CPI up to August rose 2.5%, this was down from 2023’s 3.1%.
Officials have also found forecasting base-pay hikes challenging. Bank officials aim to predict a final base-pay increase by comparing March Rengo survey data with historical patterns and will study how much March 2025’s first result deviates from the prior year’s, which printed at 3.70%.
In fiscal 2023, the weighted average base pay rose 2.12% in the final survey, down from the initial 2.33%.
While Bank officials believe the economy, prices and wages are on track, they see the March wages survey as a key data set that helps inform the BOJ's policy agenda. The Board ended the negative rates regime and yield curve control in March shortly after the publication of the Rengo's first result on March 15. (See MNI BRIEF: BOJ Ends Negative Rate, YCC, Maintains JGB Buying)
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The recent branch managers report, which showed an increasing number of firms ready to raise wages next fiscal year to ensure necessary workers, has encouraged Bank officials.
They are focused on wage hike trends by major companies, which will be made available from late October and the beginning of next year, to predict the strength and the degree of wage hikes, which tend to influence smaller company increases.
Smaller base-pay hikes in April would damage the foundation for price revisions – particularly services – and weaken the so called wage-price virtuous cycle, the BOJ has warned.