REPEAT: MNI STATE OF PLAY: BOJ Price View Cautious After Wages

By Hiroshi Inoue 

     TOKYO (MNI) - Bank of Japan officials expect a slight pickup in the pace of

wage hikes seen in fiscal 2018 to support the current modest economic recovery

but they remain skeptical about its effect of lifting consumer prices toward the

bank's 2% target, MNI understands.

     Early results of labor-management negotiations over wages and working

conditions for fiscal 2018 were released Friday after the BOJ's latest policy

meeting on March 8-9, which was a non-event due to the lack of fresh data

concerning wages and inflation.

     Preliminary data from the Japanese Trade Union Confederation (Rengo) showed

the average wages for 1.27 million employees at large and small firms (about 2%

of the total number of employees in Japan) would rise 2.16% in fiscal 2018

starting in April, up from 2.06% the previous year. It was the first rise in

three years but fell short of 3% called for by Prime Minister Shinzo Abe.

     The focus is on the next BOJ policy meeting on April 26-27, when the board

will release its medium-term growth and inflation projections through fiscal

2020 in the quarterly Outlook Report.

     Ahead of the meeting, BOJ officials don't think the slight pickup in total

wages including bonuses will push up lackluster consumer spending sharply as the

pace of base wage increase remains slow. Their view remains unchanged that

consumer prices slow to respond to economic recovery and labor shortages.

     --SLOW WAGE HIKES

     "Wage hikes for this (fiscal) year are higher than seen in the previous

year but the pace of increase is below 3%. They (BOJ officials) are monitoring

the impact of higher wages on consumer spending and how it will prompt firms to

raise retail prices and raise inflation," a person who is familiar with BOJ

thinking told MNI.

     The person added wage growth is expected to accelerate at smaller firms

because labor shortages are forcing some of them to give up taking new orders.

     The initial Rengo data showed the average wages for workers at small

businesses would rise 2.17% in fiscal 2018, up from the 2.06% increase in final

figures for fiscal 2017.

     In Rengo's initial estimate, the average base wages are expected to rise

0.77% in fiscal 2018, up from the 0.48% increase seen in fiscal 2017.

     BOJ officials believe the economy needs a faster rise in base wages in

order to see stronger consumer spending.

     BOJ Governor Haruhiko Kuroda has said that total average wages must rise

more than 3% every year for the central bank to anchor inflation around its 2%

price target.

     --APRIL MARKUPS EYED

     Large companies tend to set new prices in April at the beginning of a new

fiscal year while smaller firms consider changing prices gradually throughout

the year, monitoring closely whether households are accepting markups.

     Higher labor and energy costs have been prompting some companies to raise

prices but others are absorbing higher costs by increasing productivity,

restricting consumer prices.

     Some firms are still reluctant to raise base wages as that will push up

fixed labor costs. Those companies tend to pay higher bonuses instead.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com