Japan’s Shunto negotiations yield 5.28% pay rise, a 33-year high

Major Japanese firms have committed to a 5.28% wage increase, marking a 33-year peak.

By Ahmed Azzam | @3zzamous | 15 March 2024

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  • Firms agree to a 5.28% wage hike, the highest in 33 years.

  • The BoJ may soon end its negative interest rate policy.

Rising expectations

Japan's "Shunto" or "spring wage offensive" has culminated in an extraordinary outcome this year, with a significant wage increase of 5.28% agreed upon by major firms, as announced by Rengo, Japan's largest trade union group. This milestone achievement surpasses the previous year's increase of 3.80% and sets a new precedent for the nation's economic landscape. The discussions for smaller companies are expected to conclude by March's end.

BoJ's anticipated move

The wage growth is seen as a positive signal by BoJ officials, hinting at a possible end to the enduring negative interest rate policy. However, the precise timing of this policy shift remains uncertain, with speculations split between the upcoming week's meeting and a potential delay until April.

A recent Reuters poll highlighted the divide among economists, with a slight majority favoring an April decision, banking on the BoJ's access to a fuller picture, including the Tankan survey and new economic projections. Yet, the BoJ's history of market surprises underscores the unpredictability of its moves.

Government's stance on wage growth

Finance Minister Shunichi Suzuki's acknowledgment of Japan's escape from deflation, thanks to a robust trend towards wage growth, marks a significant shift in official narratives. This is a departure from previous statements that hinted at Japan's ongoing battle with deflationary pressures.

BoJ meeting: A turning point?

With the next BoJ meeting on the horizon, anticipation builds around the potential policy shift. The prospect of interest rates moving out of the negative territory, where they've been pegged at -0.1% annually, is a focal point of interest. The BoJ stands as the sole major central bank still embracing negative borrowing costs, making the upcoming decision all the more pivotal.