A significant number of Japanese companies recognise the necessity of continuing to increase wages due to persistent labour shortages, the Bank of Japan (BOJ) reported on Thursday.
This development suggests that conditions for a potential near-term interest rate hike are gradually aligning.
According to the central bank, some firms are already evaluating the extent to which wages can be increased this year, reflecting growing optimism that the substantial pay rises recorded last year will persist. The BOJ has consistently emphasised that sustained and widespread wage growth is essential before further tightening of monetary policy can occur.
In its quarterly report on regional economic conditions, the BOJ noted that many areas in Japan were experiencing broader price increases as businesses sought to fund higher wages. While some companies are still deliberating on pay adjustments for this year, smaller businesses remain cautious about raising wages due to the financial strain caused by rising costs, the report stated.
Conversely, other firms have already begun discussing the specifics of wage increments.
Taken together, there were many reports saying a wide range of firms see the need to keep hiking wages,” the BOJ highlighted in its statement following a meeting of regional branch managers. These insights will be among the key factors considered during the BOJ’s next policy meeting scheduled for 23–24 January, where some analysts anticipate a possible interest rate hike from the current 0.25%.
The BOJ also upgraded its economic outlook for two of Japan’s nine regions while maintaining a moderate recovery assessment for the others. The central bank ended its negative interest rate policy in March and raised its short-term rate target to 0.25% in July, based on the expectation that Japan was on course to achieve the 2% inflation target sustainably.
In December, BOJ Governor Kazuo Ueda expressed the need for additional data on whether wage increases would expand to more companies during this year’s labour negotiations between firms and unions. While large companies are projected to raise wages by approximately 5% on average in 2025—matching last year’s increase—the critical challenge lies in extending these pay rises to smaller businesses in regional areas.
Recent data published on Thursday revealed that base salaries, or regular pay, rose by 2.7% in November, marking the fastest increase since 1992.
Frances Ibiefo
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