Japan's 2025 spring wage negotiations (Shunto) are underway, according to a Reuters report, the UA ZENSEN, an organization representing multi-industry unions in sectors such as retail, food service, and textiles, is seeking a 6% pay raise for full-time employees and a 7% pay raise for part-time employees in 2025, exceeding the 5% benchmark target set by Japan's largest union Rengo.
Negotiations on the 2025 wage level usually end around March and take effect within a few months.
Retail industry wage hike wave
The report indicates that Japanese retailers, who are typically among the most stingy employers, are set to grant a significant pay raise for the second consecutive year, suggesting that corporate profits are being squeezed, employees have more disposable income, and this paves the way for further interest rate hikes by the Bank of Japan.
For a long time, Japan's labor-intensive service sector has avoided substantial or sustained pay raises by utilizing a large number of low-wage retirees and homemakers, but as the working-age population declines rapidly and inflation rises, the situation is changing, and the retail industry, which employs 10% of Japan's workforce, is now finding it more difficult to attract and retain employees.
The retailers' concession on consecutive pay raises marks a breakthrough for the low-wage service sector and small manufacturers, and has caught the attention of policymakers, including Bank of Japan officials, who hope to see wage growth stabilize after 25 years of stagnation.
The Bank of Japan is basing its latest rate hike cycle, including the expected additional hike in the policy meeting later this week, on a sustained "virtuous cycle" of higher wages supporting higher prices for service and manufacturing goods.
As companies raise wage costs to attract and retain labor, commodity and service prices are likely to rise further, and there is a potential concern that if wage growth fails to keep up with inflation, household purchasing power will be squeezed, ultimately affecting consumption. The market is watching whether this wave of wage increases will drive long-term economic growth or become a catalyst for further inflation.
Nearly 90% of experts expect a rate hike this week
The Bank of Japan will hold its monetary policy meeting on January 23-24, and according to a Nikkei report, a survey of 24 monetary policy observers showed that 21 of them, or nearly 90%, expect the Bank of Japan to raise rates this week, and almost all experts estimate the rate hike will be one notch, with only 3 expecting no rate hike this week.
Bank of Japan Governor Kazuo Ueda said on January 15 that at this week's monetary policy meeting, they will discuss and decide whether to raise rates, and regarding the 2025 monetary policy, if the economic/price situation improves, they will raise the policy rate and adjust the degree of monetary easing.
It is worth noting that if the Bank of Japan raises rates again, it may trigger a yen carry trade unwinding similar to the one that caused a global stock and cryptocurrency market crash on August 5 last year. However, Marcin Kazmierczak, COO of RedStone Oracles, recently analyzed that the impact may be gradual rather than immediate, and the key is to observe how the central bank policymakers balance the domestic inflation target and global market stability.
