For three consecutive years, wages have increased by over 5%! Japan's strong economic results pave the way for the central bank to raise interest rates.

Japan's largest trade union federation, Rengo, has stated that its members have successfully negotiated an average wage increase of over 5% for the third consecutive year. This development may prompt the central bank to further raise interest rates in the coming months. According to preliminary statistics released by Rengo on Monday, its affiliated unions have reached an average wage increase agreement of 5.26% with employers. This number is slightly lower than the initial report of 5.46% from last year, but the average base wage increase is 3.85%, higher than the 3.84% from the same period last year. The overall wage increase that workers had been requesting was 5.94%. As more companies announce the results of negotiations, the related data will be revised several times, with the final results expected to be released in the summer. Historically, later statistics have tended to slightly decrease the average wage increase. Rengo currently represents approximately 7 million workers. The Bank of Japan has been striving to create favorable conditions for policy normalization through interest rate hikes, with sustained wage increases being both a key support for consumption and a core driver in the central bank's aspiration for demand-driven price increases. The wage increase data announced by Rengo this time is generally consistent with last year's levels, which may allow the central bank to consider raising interest rates again after uncertainties surrounding the Middle East region have subsided. After maintaining interest rates unchanged last Thursday, Bank of Japan Governor Haruhiko Kuroda stated that the overall performance of the Japanese economy had been generally in line with expectations before the escalation of tensions in the Middle East. He also pointed out that if the geopolitical conflict only brings short-term impacts and does not change the core trend of inflation, the central bank may possibly raise interest rates, leaving room for an increase at the next monetary policy meeting on April 28. Economist Taro Kimura commented, "Although the surge in energy costs may put pressure on business profits, the ability of businesses to absorb higher labor costs should strengthen the confidence of the Bank of Japan that wage growth momentum will continue to support inflation this year... In conclusion, this supports our judgment that the Bank of Japan will raise interest rates in April." Overnight index futures pricing shows that traders are estimating a probability of around 64% for the Bank of Japan to raise interest rates next month. Nobuyasu Atago, Chief Economist at Rakuten Securities Economic Research Institute, stated, "The preliminary data released today confirms the Bank of Japan's basic judgment on the steady trend of this year's wage negotiations." He added, "The core issue is to what extent this wave of wage increases can be transmitted to small and medium-sized enterprises." Similarly, Kuroda highlighted his focus on the wage negotiation results of small and medium-sized enterprises, with negotiations for these companies typically concluding in April. Rengo plans to update relevant statistics on March 27 and April 3. Despite the escalating risks in the Middle East casting a shadow over business prospects, the preliminary statistics released on Monday are still encouraging. It is understood that over 1,500 Japanese companies operating in the Middle East region may face risks of supply chain disruptions, and the increase in oil prices may erode industry-wide profits, with manufacturing and transportation industries particularly affected. Atago believes that the Middle East situation is unlikely to affect current wage negotiations for small and medium-sized enterprises, as wages are essentially a lagging indicator. However, he cautioned that geopolitical conflicts may put pressure on wage negotiations next year. Rengo's President, Tomoko Yoshino, stated on Monday, "Many unions are still in the process of negotiating agreements, so the real test is still ahead. We expect both labor and management at each company to continue negotiating until they reach a mutually satisfactory outcome."