Japan wages feed market claims BOJ close to rate hike
by Shawn Johnson March 7, 2024 in News
(Bloomberg) — Japan’s latest wages data strengthened expectations that the central bank will raise interest rates for the first time since 2007, with the yen climbing on speculation that the move could come as soon as this month.
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Total monthly cash earnings and separate figures for full-time wages rose 2% in January, the Labor Ministry said on Thursday. Preliminary annual wage negotiation results released by a union federation on the same day point to bigger deals this year, suggesting pay trends are strengthening.
Economists and investors believe the Bank of Japan will eliminate the world’s last remaining negative interest rates this month or in April. Bets on the March 18-19 meeting are gaining momentum as reports emerge that some BOJ officials are in favor of early action while some government officials are also supporting a rate hike.
The yen rose to a one-month high on Thursday, with Japanese bank shares rising and government bonds falling after wages data and comments from a BOJ board member expressing confidence on inflation. Volatile overnight swaps have raised the probability of a March rate hike to 79%.
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Read more: BOJ said to gain confidence in wage hike before rate call
“A change in March is more likely because of the way the BOJ has been trying to nudge the market toward a rate hike since the January meeting,” said Takahide Kiuchi, an executive economist at Nomura Research Institute. Has gone.” “If the BOJ misses the timing of the current surge in prices and wages, it will not have the opportunity to revise its policy.”
The yen rose 0.6% against the dollar to 148.51, while the benchmark 10-year bond yield rose 1.2 basis points to 0.735%.
“Everything is pointing towards buying the yen,” said Takeshi Ishida, strategist at Resona Holdings Inc. in Tokyo. “Both are likely to decline following a sharp decline in yen volatility and a build-up of yen shorts.”
Wages have emerged as the final piece in the puzzle as the BOJ prepares to consider whether its stable inflation target is in sight after more than a decade of deflation.
While the rest of the global central banking community raced to raise rates as prices rise around the world in the post-pandemic recovery, Japan stood its ground, arguing it needed more evidence that stronger wages would support stable inflation. Can provide a boost which is positive for the economy. More than causing harm.
The latest wage data comes as annual wage talks between management and labor representatives reach a fever pitch, with preliminary results from Japan’s largest union federation expected ahead of a BOJ meeting next week.
‘Clear change’
BOJ officials are becoming more confident on the strength of the pay hike, a move echoed by board member Junko Nakagawa on Thursday, according to people familiar with the matter.
“There are clear signs of change in the behavior of businesses to set wages,” Nakagawa said during a speech in Shimane, western Japan. “Japan’s economy and inflation are making steady progress toward meeting the stable 2% inflation target.”
There is still no clear consensus among officials on whether the central bank should move forward at the end of its March policy meeting or wait until April. While some officials may support the BOJ raising rates this month given the strength in wages, others believe the bank will not be able to confirm whether the price target is in sight until then, as wage inflation continues to lag. There is uncertainty as to how it will be maintained. Said.
What Bloomberg Economics Says…
“Our view is that the bar is high for the BOJ. Before she considers a change in policy, we think she will want confirmation that wage increases will maintain their fast pace.
-Taro Kimura, economist
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Separately, several government officials say the central bank should not miss the opportunity to raise rates, as they see ample evidence of a virtuous cycle linking wages to price gains, according to another group of people familiar with the matter. .
UA Zensen, a labor union with more than 1.8 million members in sectors including retail and restaurants, revealed the initial results of its negotiations on Thursday morning. They showed that full-time workers in 25 unions received an average wage gain of 6.7%, up from 5.3% a year earlier.
Japan’s largest labor union federation, Rengo, will act on Thursday on moderate demands made by its unions. A year ago, it averaged 4.49%, and the last number of increases was 3.58%. Strong demands from unions this year will bode well for the preliminary compiled results of wage negotiations to be released on March 15.
The data could boost expectations that wages will outpace inflation, boost consumption and clear the way for the BOJ to raise rates.
The Japanese government has dedicated itself to maintaining wage growth to ensure a complete break from deflation after decades of stagnation following the bursting of the country’s asset price bubble more than 30 years ago.
Prime Minister Fumio Kishida has personally lobbied officials for a massive wage increase as he seeks to placate consumers frustrated by persistent inflation. His government has implemented several measures to this end, including tax exemptions for companies that increase salaries.
The prime minister reportedly plans to meet business leaders and union leaders next week for a final push.
–With assistance from Toru Fujioka, Masaki Kondo, Yumi Teso, Daisuke Sakai, and Emi Urabe.
(Economist’s comments, market movements)
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