MNI POLICY: Next BOJ Governor Won't Act Before Wages Data

There will be no immediate changes to the Bank of Japan's easy monetary policy stance after the new governor takes office in April as officials will wait for the release of small firm wage data to assess the broader pace of wage hikes, MNI understands.

While the new governor may may instruct staff to examine the impacts of prolonged easy policy, including liquidity in the bond market, a change to the bank's easing policy in unlikely before June, when small firm wage data becomes available. The data will be an important complement to details of wage hikes at Japan's bigger companies, which will be available from mid-March.

BOJ Governor Haruhiko Kuroda and his colleagues have repeatedly said the BOJ's aim is to achieve its 2% inflation target with sustainable wage hikes. (See MNI BOJ WATCH: Closer To 2% Target, But Easy Policy Remains)

Data on wage hikes at major firms for fiscal 2023 will be available from mid-March after negotiations between labour and management. Negotiations at smaller firms tend to kick off after those at major firms.

BOJ economists are focused on when wage hikes will be implemented after smaller firms complete negotiations. In Japan, about 70% of employed workers belong to smaller firms. Wage data, including that from smaller firms, will be released by the Japanese Trade Union Confederation, known as Rengo.

Rengo is seeking an increase of about 5%, which represents a rise of about 3% in base pay along with a seniority-linked bump of roughly 2%. Rengo's unions represent about 7 million members. Rengo will release its first survey results in early March and the final survey results will be released in early July. (See MNI POLICY: BOJ Studies Inflation Risks; Wages In Focus)

While major firms are benefiting from the weaker yen, the operating environment for smaller firm is challenging given high costs, the difficulty of passing costs, and the need to repay debts. A shortage of labour is more severe for smaller firms, forcing them to raise wages to attract workers.

Bank officials are also focused on how and whether pass-through of cost increases continues in or after February as the impact of the weak yen filters through to prices with a time lag. (See MNI BRIEF: BOJ Sees More Firms Hiking Prices)

Apart from wages, BOJ officials are also paying attention to how global growth, coupled with the outlook for Japan’s exports and production, evolve over the first quarter of 2023 before Spring wage negotiations as this will strongly affect corporate wage hike decisions. Weaker domestic and global growth will make businesses wary about implementing reasonable wage hikes.

Officials expect Japan’s economy to continue recovering, although exports and production will be somewhat weighed down by slowing overseas economies.

The BOJ maintains its view that exports and production are likely to remain on an uptrend as supply-side constrains wane and high levels of order backlogs for automobiles and capital goods support production.

However, the Bank warned that exports and production may be affected by a shaper slowdown in global growth, which could lead to order cancellations.