A key panel backed by the Japanese government discussed the need to scrutinize data to see if the rise of wages and prices will be stable and sustainable.
The government sees wage growth as a top priority, Prime Minister Fumio Kishida said following the meeting discussing key economic policy.
“The government sees structural wage hikes as a top priority issue,” Kishida told reporters Monday after a meeting with key cabinet ministers and others including Bank of Japan Governor Kazuo Ueda. “We want this year’s 30-year high in wage gains to lead to a stable virtuous circle between wages and prices.”
The focus on pay comes as Ueda’s BOJ also launched a longer term review of monetary policy, while adding a link to wages in its policy guidance.
Investors are closely watching whether the pay gains being seen this year may continue, leading to potential policy change at the central bank.
“There’s a possibility that wage hikes will stick as a trend because of severe labor shortages,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.
But “many small companies can’t heed the government’s call because they struggle to pass on costs. The government should create an environment where firms can boost productivity and reflect that on prices and wages,” she said.
The Nikkei newspaper earlier reported Kishida will order the government and the central bank to conduct reviews on the sustainability of wage increases.
Japan’s inflation has been above the BOJ’s 2% target for the 12th consecutive month in March, making it difficult for wages to keep pace. Tokyo’s inflation data, a leading indicator of nationwide trends, showed renewed upward momentum in March, pointing to uncertainty over price developments.
Read more: Japan Real Wages Continue to Drop as BOJ, Kishida Scrutinize Pay
Meanwhile, the BOJ issued new price forecasts at the April meeting that indicate inflation will slow to below 2% again in the fiscal year ending March 2026, suggesting that rising prices will weigh less on real wages further down the line.