By Megumi Fujikawa
TOKYO--More Japanese companies are seeing the need to keep offering pay increases, the Bank of Japan said Thursday, in the latest sign that the economy is making progress toward growth backed by higher wages.
"Given structural labor shortages and the minimum wage hike, the view that continuous wage increases are necessary is spreading across companies in a wide range of sectors and of various sizes," the bank said in a summary of discussions at the BOJ's meeting of regional branch managers on Thursday.
With the BOJ seen as close to making an additional interest-rate increase, companies' stance on Japan's annual wage negotiations holds the key to decoding when the next hike might happen.
According to the central bank's branch managers, not everyone is on the same page yet. Some companies, especially smaller ones, are cautious about giving pay raises because of severe earnings conditions, according to the BOJ's summary. Other are waiting to see what their competitors will do and haven't decided on the size of wage increases, the bank said.
In its quarterly regional economic report, the bank raised its assessment of two out of nine Japanese regions, and maintained the view for the rest. The economies of all nine regions are recovering, although the pace differs in each, the report said.
Despite the signs of economic improvement, views are split over the timing of the BOJ's next interest-rate increase.
Mizuho Securities economist Yusuke Matsuo said Thursday's announcement offers fresh evidence that the economy is on track to align with the BOJ's outlook, but that markets may not be fully ready for a rate increase in January.
"The BOJ may want to avoid an aggressive rate hike that could destabilize financial markets and consider postponing any action until the March meeting," Matsuo said.
The central bank left its policy rate unchanged in December. BOJ Gov. Kazuo Ueda said at the time that the bank deemed it necessary to wait for clarity on Japan's wage trends and U.S. economic policies. The bank is scheduled to hold its next meeting on Jan. 23-24.
Wage data released earlier in the day showed mixed signals. Total cash earnings rose 3.0% in November from a year earlier, faster than the 2.2% increase seen in October. Meanwhile, inflation-adjusted wages declined for a fourth straight month, falling 0.3% on the year.
The BOJ's regional report also showed growing concerns over the potential impact of higher U.S. tariffs under president-elect Donald Trump.
"With orders from China struggling to recover, we are concerned about the possibility that orders from the U.S., which have been solid, may decline going forward due to the effects of tariff hikes," the report quoted a metal products maker in Osaka as saying.
"Companies will likely make decisions on capital expenditures after the inauguration" of the new U.S. president when details of his economic policies become clearer, said Kazushige Kamiyama, who is in charge of the BOJ's Osaka branch.
He added that not many companies in the western region of Japan are front-loading exports to the U.S. ahead of possible tariff increases by Trump.
Osaka is home to major exporters, including electronics makers such as Panasonic and Sharp.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
January 09, 2025 03:35 ET (08:35 GMT)
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