Japanese Wages Rise 3.1%, BOJ Expected to Raise Interest Rates!
Japan is currently facing a rising cost of living, but workers seem to have received some good news. In January 2025, the base wage increased by 3.1%, marking the highest wage increase in 32 years. This increase is due to a strong labor market and unions pushing for higher pay to offset the effects of inflation.
This directly impacts the Bank of Japan (BOJ), which is now considering raising interest rates. Previously, the BOJ kept interest rates low to stimulate the economy, but with wages rising, the BOJ is likely to gradually raise interest rates to bring monetary policy back to normal.
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Rising Wages, but Living Costs Still Pressuring
Although wages have risen, the purchasing power of Japanese citizens is still under pressure from higher living costs, particularly the faster-than-expected rise in consumer goods prices. In January, the overall inflation rate reached 4%, driven mainly by the sharpest increase in fresh food prices in 20 years.
At the same time, the real income of Japanese people (Nominal Cash) has slowed down, growing only 2.8%, below economists’ expectation of 3%. When adjusted for inflation, real income has decreased by 1.8%, marking the largest drop since March 2021.
When Will the BOJ Raise Interest Rates?
The BOJ is closely monitoring wage trends. If wages continue to rise, there is a chance the BOJ will raise interest rates sooner to control inflation and normalize monetary policy.
Economists predict that the next interest rate hike could occur as early as May 1 or, at the latest, during the summer. The BOJ will need to find a balance between supporting economic growth and preventing inflation from rising too high.
Pressure from Labor Union and Politics
Another key factor to watch is the wage negotiations between labor unions and employers, which are nearing conclusion. The “Rengo” union, Japan’s largest labor union, has called for the largest wage increase in 30 years to help ease the rising cost of living.
Meanwhile, Prime Minister Shigeru Ishiba’s government is facing public pressure regarding inflation, which could impact national elections this summer. If the cost of living continues to rise, the government may need to introduce additional measures to help the public.
While the wage increase is good news for Japanese workers, the growth in real income is still pressured by high inflation. The BOJ may need to gradually raise interest rates to maintain economic balance. All eyes are now on the BOJ’s decision on how quickly it will raise interest rates and whether government measures will help citizens deal with the rising cost of living.
Reference
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