For three consecutive years, salary increases of over 5% have supported the prospects for the normalization of the Bank of Japan's monetary policy. However, after unclear statements from Governor Kuroda and other policymakers, the probability of a rate hike in April has dropped sharply.

Japan's largest trade union federation, Rengo, has stated that after including the negotiation results with small and medium-sized enterprises in the statistics, the union's members have still received an average wage increase of over 5% in this year's salary negotiations. This result will allow the Bank of Japan to maintain its path towards monetary policy normalization. According to the latest statistics released on Friday, Rengo's members have secured an average wage increase of 5.08% so far. Although this is a slight decrease from the 5.26% reported in March, the overall increase has remained above the organization's set target of 5% for the third consecutive year. The latest statistics include agreements from 2156 companies with fewer than 300 employees, compared to 552 companies in the initial report from March. Small businesses typically report wage agreement results later than large enterprises, and in recent years, these results have dragged down the overall average. According to the latest statistics, workers in companies with 300 employees or more will receive a 5.1% raise this year, while workers in companies with fewer than 299 employees will receive a 4.84% raise. Workers in small businesses usually receive more moderate pay raise percentages during negotiations. The Bank of Japan has been striving to create conducive conditions for policy normalization through interest rate hikes. Continued wage increases are not only crucial for supporting consumption but also a key driver of the demand-driven inflation that the central bank hopes to achieve. Bank of Japan Governor Kuroda Haruhiko has emphasized multiple times that before raising borrowing costs further, there needs to be further significant wage increases to support sustained inflation. The wage increase data released by Rengo may allow the Bank of Japan to consider another rate hike once uncertainties in the Middle East region gradually dissipate. As one of the economies most vulnerable to market turmoil caused by conflicts in the Middle East, the soaring energy costs have heightened the risks of re-accelerating inflation in Japan. By 2025, Japan's inflation has stayed above the Bank of Japan's 2% target for four consecutive years, sparking speculation on the timing of the Bank of Japan's rate hike. Kuroda Haruhiko suggests that the Bank of Japan will stay put in April The Bank of Japan is scheduled to announce its latest interest rate decision on April 28. Kuroda Haruhiko highlighted the challenges faced by policymakers in his latest speech and avoided giving any clear signals regarding rate expectations. Following his attendance at the G-20 central bank governors' meeting in Washington on Thursday, Kuroda Haruhiko told reporters, "The current situation is marked by significant shocks from rising energy prices. This brings both upside risks to prices and downside risks to the macroeconomic outlook." "Therefore, policy responses are very difficult. It's not easy to give a general, one-size-fits-all answer." In a speech on Monday, Kuroda Haruhiko emphasized the increasing uncertainties in the macroeconomic outlook due to rising oil prices and the depreciation of the yen, and his latest vague stance undoubtedly reinforces this position. In what could be his final public appearance before the rate decision on April 28, Kuroda Haruhiko treaded cautiously, avoiding boxing himself in with his policy tone. As a result, following Kuroda Haruhiko's speech, bets on the Bank of Japan's rate hike in April have cooled significantly, with most traders betting that the Bank will keep rates unchanged in the April meeting. The latest overnight indexed swap market's top index shows that the market currently prices in only about a 19% probability of the Bank of Japan raising the benchmark rate by 25 basis points to 1% this month, significantly down from around 55%-60% at the start of the week; the probability of the Bank of Japan taking action before the end of June has risen to 76%. Before the previous two rate hikes, Kuroda Haruhiko had sent clear signals to ensure the market was prepared for potential rate increases. Therefore, many had expected a similar pattern before this month's policy meeting at the Bank of Japan, even before the escalation of tensions in the Middle East. However, as signs of easing tensions in the Middle East emerged, expectations around the Bank of Japan potentially hiking rates in April have significantly dwindled. Takeda Jun, chief economist at Itochu Economic Research Institute, said, "Without a clear signal, the likelihood of a rate hike this month has become slim." "Market expectations have significantly decreased, but he has not attempted to adjust these expectations." Additionally, Japanese Finance Minister Katsunobu Kato told reporters in Washington on Wednesday that many central banks attending meetings pointed out that it is currently best to wait on monetary policy. In response, Takeda Jun said that just the fact that Katsunobu Kato revealed this background information indicates that the Japanese government may be paving the way for no rate hike this month. It is well known that Japanese Prime Minister Fumio Kishida prefers monetary stimulus policies over a tightening stance. Former Bank of Japan policymaker Kazuo Momma, who was responsible for monetary policy, pointed out earlier this week that the developments in the Middle East have put the Bank of Japan in an extremely difficult position. In highly uncertain times, the central bank's usual strategy is to wait and watch for further developments, making the outcome of this month's meeting difficult to predict. He added: "There is a wide range of possible outcomes in the next two to three months. In this uncertain environment, I believe it is normal for any central bank to wait and see how things develop."