Japan’s largest union group, Rengo, has achieved a first-round average wage increase of 5.46%. This figure, although below the 6.09% demanded, is an improvement on last year’s 5.10% and continues a trend of wage hikes exceeding 5% for the second year.
The 2023 average increase was recorded at only 3.80%. Initially reported figures tend to be revised downwards, as seen in 2024’s first-round data which dropped from 5.28% to 5.10%.
Impact On Exchange Rate
Following the announcement, the USD/JPY exchange rate rose from approximately 148.63 to 148.91. This wage increase is expected to have little influence on the Bank of Japan’s decisions in March and May.
This wage growth outcome suggests that upward pressure on incomes is persisting, reinforcing expectations that consumer purchasing power will remain on the rise. The 5.46% increase is the highest since 1991. However, given how past figures have been revised downward, it remains to be seen whether the final number will stay above the 5% threshold. Regardless, two consecutive years of such increases indicate that corporate willingness to offer higher pay is now more established.
The immediate reaction in currency markets saw the yen lose some ground against the dollar, with the exchange rate pushing towards 149.00. Even so, this movement was contained, implying that traders had largely anticipated the result, or at least did not view it as altering the outlook for monetary policy in the near term. Market participants appear to be positioning themselves for more definitive signals from the Bank of Japan rather than reacting strongly to wage data alone.
Broader Economic Implications
For policymakers, a sustained rise in wages would strengthen the case for moving away from the ultra-loose monetary stance that has characterised their approach for years. However, as noted, the Bank of Japan is unlikely to adjust its course simply because of this outcome. March and May decisions are expected to be guided more by inflation trends and overall economic conditions than by wage negotiations alone. Attention will therefore shift towards broader economic reports before any clearer signals emerge on potential shifts in interest rates or policy settings.
Looking at the bigger picture, this development reinforces the growing expectation that Japan’s inflationary pressures might have a stronger foundation beyond just cost-push factors. If companies maintain their stance on raising wages in subsequent rounds of negotiations, it would indicate a deeper change in behaviour rather than a temporary adjustment. This would align with the central bank’s stance that sustainable inflation must be tied to wage growth rather than external price shifts.
What stands out is that the wage settlement, while notable, will not single-handedly dictate near-term policy discussions. We have already seen that the yen’s reaction was muted. The coming weeks will therefore be more about assessing how firms adjust their wage commitments further and whether these increases filter through into persistent spending growth. Wage data alone is not the decisive factor that will prompt action, but when combined with inflation figures and corporate pricing behaviour, it provides pieces of a broader puzzle.
