Source: Gelonghui

On Wednesday, the results of Japan's “Spring Dou” negotiations were announced one after another. Most Japanese companies agreed to the union's wage increase request, and the average salary increase in various industries was much higher than last year.

This clears the way for the Bank of Japan to end its multi-year negative interest rate policy as early as next week.

As wage negotiations ushered in positive signs, the market is focusing on Japan's interest rate hike in March. The dollar fluctuated against the yen today and is now down slightly by 0.04% to 147.603.

Japanese stocks fell for the third day in a row. The Nikkei 225 index closed down 0.26% to 38695.97 points, while the Eastern Stock Index all closed down 0.33% to 2648.51 points.

Big salary increase!

The Japan Metals, Machinery, and Manufacturing Workers Association said on Wednesday that the average salary increase of the 60 affiliated trade unions was 5.32%, significantly higher than last year's figure.

Most Japanese companies have also agreed to the union's demand for wage increases. Toyota Motor, which is regarded as a pioneer in “Chundo” wage negotiations, agreed to give factory workers the biggest salary increase in 25 years.

As one of the world's largest car manufacturers, Toyota said it agreed to a monthly salary increase of up to 28,440 yen ($193) and a record bonus payment. This is the fourth year in a row that Toyota has fully responded. 　

Nissan agreed to increase monthly wages by an average of 18,000 yen ($122), the biggest increase since the company introduced the current wage system in 2005.

Nippon Steel said it will increase the basic wage by 35,000 yen per month, which is 5,000 yen higher than what the trade union requires.

Mitsubishi Heavy Industries, Ltd., Kawasaki Heavy Industries Co., Ltd., Mitsubishi Electric Corporation, and NEC also said that they have fully met the union's requirements to increase basic wages, increasing the monthly salary by 13,000 yen to 18,000 yen.

Most large companies' annual wage negotiations begin around mid-February and are expected to end in mid-March; the results usually affect negotiations for smaller companies.

The Japanese government's chief spokesman said, “We have seen strong momentum in wage increases. “Importantly, the strong wage increase will spread to small and medium enterprises.

According to data from Rengo, Japan's largest trade union consortium, demand for average wage increases in Japan has reached 5.85%, up from 4.49% a year ago, the highest figure in 30 years.

On Friday (March 15), Japan's 2024 “Spring Dou” wage negotiations will be announced. Analysts expect wage growth to reach 5% or more this year.

If the results exceed expectations, then it will give the Bank of Japan a strong green light to end the world's last negative interest rate; otherwise, the prospects for interest rate policy will be bleak.

Economists believe that a sharp increase in wages is a prerequisite for the Bank of Japan to announce that its long-term goal of sustainable wage growth and price stability is close at hand, and to welcome the end of negative interest rates since 2016.

Withdrawing from negative interest rates in March?

Previously, the Bank of Japan had repeatedly emphasized that its policy decisions would depend on the outcome of negotiations.

As the cost of raw materials rises and the yen weakens, the rising cost of living puts pressure on families, and the Japanese government has repeatedly asked business leaders to raise wages faster than inflation.

As expectations of drastic salary increases increase, this will help clear the way for the Bank of Japan to end its years-long negative interest rate policy as early as next week.

For a long time, the Bank of Japan has set an inflation target of 2% and guided short-term interest rates to -0.1% under the so-called yield curve control (YCC) policy, and the yield on 10-year treasury bonds is around 0%.

Since inflation has exceeded the target for more than a year, and the prospects for wages to continue to rise are heating up, the market currently expects the central bank to end its negative interest rate policy this month or April. If spring wage negotiations are strong, then it may not necessarily be necessary to wait until April.

Currently, the Bank of Japan is judging whether the 2% sustainable inflation target they have been pursuing for a long time is close at hand. The Bank of Japan will hold a policy meeting from March 18th to 19th this month.

Last week, Bank of Japan Governor Ueda Kazuo said that the possibility of achieving the central bank's inflation target is gradually increasing.

“If we confirm that the active wage inflation cycle is strengthening, we can consider revising our large-scale monetary easing measures.”

Furthermore, he also explained in detail how the Bank of Japan will guide the policy after withdrawing from negative interest rates, indicating that the Bank of Japan is actively brainstorming ideas to successfully end the long-term ultra-loose policy.

Bank of America pointed out that the probability that the Bank of Japan will adjust its policy in March is higher than in April. Mari Iwashita, chief market economist at Daiwa Securities, said that spring wage negotiations are a key event, and if the results exceed 3.8% last year, the Bank of Japan should end negative interest rates.

“They can also act in April, but they will have to look for excuses to raise interest rates because they may have to lower their growth prospects.”

So, what impact will the Bank of Japan's policies have on the market next? Analysts believe that market fluctuations may continue until the Bank of Japan moves towards policy normalization.

A policy shift could benefit the yen, as it will help narrow the spread between Japan and the US, especially if the Federal Reserve starts an easing cycle later this year. But if policies change, the stock market, which recently hit record highs, could be hit along with bonds.

edit/ruby