Japan Signals Steady Minimum Wage Gains, Backing BOJ’s Hike Path

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(Bloomberg) — Japan aims to keep minimum wages rising steadily, signaling income growth across a broad spectrum of the economy remains resilient as the Bank of Japan seeks evidence that pay gains are supporting domestic demand.

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Japan’s Labor Ministry advisory panel on Tuesday recommended raising the nationwide average minimum hourly wage by 4.9% to ¥1,176 ($7.18) for the current fiscal year. While smaller than last year’s record 6.3% increase, it represents a ¥55-per-hour gain, the second-largest rise on record.

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The new wage floor, which would apply to over 50 million workers, is expected to gradually take effect starting in October after regional authorities finalize their own rates.

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The recommendation follows another strong round of annual wage negotiations between unions and employers, with workers affiliated with the largest labor federation securing average pay increases above 5% for a third straight year. Rising minimum wages suggest pay gains are spreading beyond large companies to a wider segment of the workforce, as a labor shortage forces firms to compete for workers.

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That would support the BOJ’s campaign to foster a virtuous cycle linking wage gains to stronger demand and stable price increases, a key component in the case for further rate hikes. Pressure on the central bank to continue raising its benchmark rate has increased as the weak yen inflates the costs of imported energy and food, squeezing household budgets.

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The BOJ is widely expected to hold its benchmark rate steady when it next sets policy on Friday, as it assesses the impact of last month’s increase to 1%, the highest since 1995.

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Sustained wage growth is a central concern for Prime Minister Sanae Takaichi’s government as voters grow increasingly frustrated that wage gains have failed to keep pace with inflation. The premier’s public support ratings have started to cool as she is seen by voters as focusing too much attention on pet interests and distant future targets, rather than rising living costs. 

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Her administration, however, has adopted a less ambitious stance on the minimum wage than her predecessor. In its annual economic policy guidelines approved last week, the government pledged to lift the nationwide average minimum wage to ¥1,500 “as early as possible, and no later than the early 2030s.” Former Prime Minister Shigeru Ishiba had pressed for that achievement “by the 2020s.”

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Labor representatives sought a 6.7% increase at the outset of the process this year.

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The rapid pace of recent minimum wage increases has created strains for some regional economies. Several prefectures, including Gunma and Akita, were slow to implement last year’s higher wage floor as local businesses struggled to adjust.

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