BOJ highlights broadening wage, price hikes in report on regional Japan

SMALL and mid-sized companies in many regional areas of Japan have aggressively raised wages, reflecting intensifying labour shortages, the Bank of Japan (BOJ) said on Monday (Jul 10), underscoring its growing conviction that wage hikes were broadening.

In a quarterly report, the central bank also said some companies were considering raising the prices of their goods and services to guard against the prospect of rising labour costs.

“Many regions reported cases where wage increases by small and mid-sized firms were broadening at a degree unseen in recent years,” the BOJ said in the report analysing the economic situation of regional areas.

With inflation exceeding its 2 per cent target for more than a year, markets are speculating that the BOJ will phase out its massive stimulus that has drawn criticism for distorting market pricing and narrowing financial institutions’ margins.

The BOJ has said it needs more evidence that inflation will sustainably meet its price target, accompanied by solid wage growth.

Takeshi Nakajima, the BOJ’s branch manager overseeing the Kansai western Japan region, said it was too early to judge whether companies will keep raising wages next year.

“A lot of companies in the region say that will depend on this year’s earnings and what their rivals could do,” he told a news conference, when asked whether wage hikes will continue.

“If companies can earn enough revenues to pay for higher wages, there’s hope wage rises will continue. Given uncertainty over the outlook, however, it’s premature to say decisively that this will happen.”

In the quarterly report, the BOJ raised its economic assessment for three of Japan’s nine regions, and maintained it for the remaining six regions.

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“All of the regions saw economic growth pick up or recover moderately,” the report said.

Monday’s report will be among the factors the BOJ will analyse to formulate fresh quarterly growth and inflation forecasts at its next policy meeting on Jul 27-28. REUTERS