According to the Wisdom Financial APP, basic wages for Japanese workers have experienced the largest increase in over 30 years, supporting the Bank of Japan's view that the economy is still on the path to recovery and providing reasons for a potential interest rate hike in the coming months.

The Japanese Ministry of Health, Labor and Welfare reported on Thursday that the year-on-year growth rate of basic wages in September accelerated to 2.6%, higher than the 2.4% growth rate in August. This is the largest increase in 31 years.

Nominal cash income increased by 2.8%, lower than the widely expected 3%, while a more stable indicator of wage trends (excluding bonuses and overtime pay to avoid sampling issues) showed that full-time workers' wages increased by 2.9%, slightly faster than the previous month's 2.8%.

Another less favorable situation is that despite the slowdown in price increases in September, real wages have declined for the second consecutive month. Previously, the government reinstated subsidies to reduce household gas and electricity bills.

Overall, Thursday's data shows that despite signs of softness, the momentum of wage increases remains relatively stable, sending a bullish signal to the government hoping to see wage increases drive spending and stimulate demand-led inflation. While the Bank of Japan kept interest rates unchanged at last week's policy meeting, BOJ Governor Haruhiko Kuroda reiterated his view that Japan is on track to achieve its inflation target and pointed out the possibility of further rate hikes in the future.

Itochu Research Institute's Chief Economist Atsushi Takeda said: "There is no doubt that wages are rising. As expected, the trend of raising interest rates again is improving."

Nearly half of the economists surveyed last month said they expect the Bank of Japan to raise the benchmark interest rate in December, with another 32% predicting this will happen in January next year.

Bloomberg Economics economist Taro Kimura said, "These data support our view that the Bank of Japan will further raise interest rates in January next year, when it will see more evidence that the U.S. economy is achieving a soft landing, and may be encouraged by signs of the domestic wage-price cycle continuing to gather momentum."

Japanese Prime Minister Shizo Abe is closely monitoring wage trends, having identified real wage growth as a key issue on his agenda. To achieve this goal, Abe has ordered the development of an economic stimulus plan which is expected to include measures to alleviate the impact of price increases on household budgets, as well as support for small and medium-sized enterprises to raise wages.

The future of wage growth will depend on the outcome of the next round of annual negotiations between unions and corporate employers that began a month ago. Japan's largest labor organization, Rengo, aims to seek a minimum 5% raise in negotiations, maintaining the target set for this fiscal year. The organization ultimately ensures an average wage increase of 5.1% this year, the largest in over 30 years.

Rengo Chairman Tomoko Yoshino stated that wage increases for workers of small and medium-sized enterprises, and part-time workers, may play a key role in determining the sustainability of the growth momentum.

Under Rengo's leadership, another wide-reaching union is seeking larger pay raises in the upcoming negotiations. UA Zensen, mainly made up of employees from small companies, announced on Wednesday that they will seek a 6% increase in overall wages for full-time employees and a 7% increase in overall wages for part-time employees.

On October 31, after the Bank of Japan maintained interest rates unchanged in its policy, Kuroda said in a press conference following the decision that if next year's wage growth remains consistent with this year's results, it will generally boost the economy. He noted that the bank will not make any interest rate decisions solely based on the results of wage negotiations, but also highlighted that this year's wage growth was a key factor in the bank's decision to end negative interest rate policy in March.

Furthermore, Trump's victory in the U.S. presidential election helped weaken the yen, increasing the risk of fostering inflation. Senior economist at Mizuho Research & Technology, Saisuke Sakai stated: "The Bank of Japan is more focused on currency rather than domestic factors such as the economy and prices." He added that if the yen weakening puts pressure on the central bank, the Bank of Japan could potentially raise interest rates as early as December.

After private spending increased for the first time in five quarters in the three months ending in June, import-driven inflation may also restrain consumer confidence. Next week will see the release of Japan's domestic product data for the summer quarter, which will indicate whether the consumption recovery will be sustained.

Thursday's wage data partially reflects the ongoing tightness in the Japanese labor market. In September, the ratio of job offers to job seekers increased, with the unemployment rate dropping to 2.4%, the lowest level since January. The Bank of Japan mentioned in its latest quarterly outlook report that the continued tightening in the labor market conditions could further support employee income.

Editor/ping