WYOMING: Governor Kazuo Ueda said wage increases are spreading beyond large firms and are likely to accelerate due to a tightening labour market, signalling that conditions for another interest rate hike may be forming.
Speaking at the Federal Reserve Bank of Kansas City’s annual Jackson Hole Economic Symposium, Ueda noted that decades of stagnant wages in Japan were driven by “entrenched deflationary expectations”. However, global inflation shocks following the Covid-19 pandemic have disrupted this pattern.
“Notably, wage growth is spreading from large enterprises to small and medium enterprises”, Ueda said, adding that the labour market is expected to remain tight and continue to exert upward pressure on wages barring a major negative demand shock.
Japan has seen three consecutive years of significant wage increases during annual spring wage negotiations. Labour mobility has risen as younger workers seek better-paying jobs, forcing companies to raise pay to retain talent. Ueda emphasised that demographic shifts from the 1980s are now producing acute labour shortages and persistent wage pressures, alongside supply-side adjustments such as higher workforce participation and increased mobility.
Ueda’s remarks come as part of a panel with Bank of England Governor Andrew Bailey and European Central Bank President Christine Lagarde discussing labour market challenges.
The BOJ exited its decade-long stimulus last year and raised interest rates to 0.5% in January, aiming to achieve its 2% inflation target. While underlying domestic inflation remains below target, sustained wage growth and high food inflation have led some BOJ officials to warn of second-round price effects that could justify another rate hike. Nearly two-thirds of economists surveyed by Reuters expect the BOJ to raise its key rate by at least 25 basis points later this year. — Reuters
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