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[TOKYO] The Bank of Japan (BOJ) expressed disappointment at how slowly companies are raising pay despite a tightening job market, suggesting its readiness to expand stimulus if the recent market turmoil further delays wage hikes.
But BOJ governor Haruhiko Kuroda maintained his upbeat view on the economy and offered no clear signs that additional stimulus may be forthcoming this month.
"Japan's economy is expected to continue recovering moderately," he told a meeting of the BOJ's regional branch managers on Monday, making no mention of the global market turmoil that has sent Tokyo stocks tumbling.
Wage growth is crucial to the BOJ's goal of accelerating inflation - now barely above zero - to 2 per cent, as higher wages give consumers more money to spend and let firms raise prices.
In a report on Japan's regional economies, the BOJ said some firms in big cities are keen to raise salaries. But it signalled frustration with the pace of increases nationwide.
"Many small- and medium-sized companies in regional areas remain cautious of raising regular pay for permanent employees," the central bank said in the quarterly report.
"For now, momentum toward raising salaries next fiscal year has failed to gain steam," with many firms wary of a shrinking domestic market and global uncertainties, it said.
The gloomy view on wages underscores the challenges the BOJ faces in eradicating Japan's sticky deflationary mindset.
Slumping oil costs have weighed on consumer prices and inflation expectations, keeping alive anticipation of more easing as early as the Jan 28-29 rate review.
"Developments in wages could definitely impact monetary policy," said Daiju Aoki, economist at UBS Securities.
"I think the BOJ can wait and see, but the risk is corporate sentiment worsens due to financial market turmoil. Sentiment matters for wages." The BOJ maintained its rosy assessment for seven of nine regional economies.
It was the most upbeat in nearly eight years on Tokai, home to Toyota Motor Corp, but cut the assessment for Kinki, western Japan, where Panasonic Corp is based, due to sluggish emerging market demand for machinery.
Kinki's companies "are doing well now but some are voicing concern over the outlook", said Atsushi Miyanoya, head of the BOJ's branch overseeing the region.
The yen's rebound to around 117 to the dollar caught some exporters off guard, as many of them prefer the currency pair to move stably around 120 yen, he said.