Japan panel urges record minimum pay hike in bright sign for Bank of Japan

[TOKYO] A panel advising Japan’s government called for a record increase to the minimum wage for a second straight year, sending a positive signal to the Bank of Japan (BOJ) as it pursues demand-led economic growth.

The advisory panel to the Labour Ministry proposed on Monday (Aug 4) raising the average minimum hourly wage for the current fiscal year by 63 yen (S$0.55) to 1,118 yen. The 6 per cent hike would be the largest gain since the government began setting hourly wage targets in 1978 and would follow last year’s 5 per cent bump, the previous record.

In order to reach a consensus, the government panel, comprising of representatives of labourers, corporate management and experts, convened on seven occasions. It was the longest negotiation process in more than four decades, underscoring the challenges of balancing the case for strong pay hikes as living costs soar against the need for companies to protect operating margins as US tariffs threaten to squeeze profits.

The target suggests wage momentum remains intact, an encouraging sign for the BOJ as it looks for evidence of the sustained economic strength that would allow it to proceed with normalising policy settings with another rate hike. Despite strong nominal wage gains in recent years, real wages have mostly stayed negative, with inflation consistently outpacing income gain.

Data due Wednesday are expected to show real wages fell 0.7 per cent in June compared with a year earlier, the sixth consecutive decline.

Based on the new target, individual prefectures are expected to finalise their own targets, with decisions likely to come by the end of the month. BLOOMBERG