Shunto Provides Little Evidence For BOJ To Hike Rates

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Source: Press ReportsKey Points:· Early announcements suggest a 5.26% headline Shunto raise for the 16% of workers who are in unions in coming fiscal year, perhaps less (April through March 2027)· So far, that is translating into just a 3.85% hike in base pay, i.e., the actual average hike in wages per worker, but as more reports come in, that is expected to be closer to 3.5%· This fiscal year, when base pay for unionized workers rose 3.7%, the average wage hike for all workers was just 2.3%; that’s far below the 3% hike the BOJ says is necessary to reach its goal of healthy 2% inflation led by 1% growth in real wages· Real, inflation-adjusted wages for all workers fell 0.8% this fiscal year· Depending on energy prices and other factors shaping inflation, the coming year will likely see another drop in real wages, perhaps a worse one· If so, Japan’s stagflation problem—stagnant growth combined with high inflation—will continue and could worsen; it depends how long the war lasts and how much it damages physical capacity· The Bank of Japan (BOJ) has taken these Shunto results as sufficient to move toward normal rates, but the Iran war confuses the picture· BOJ Policy Board members disagree on whether the threat from the war is greater on the side of inflation or in depressing growth(Free subscribers can get instant access to the full text of this and all future Memos by subscribing for $50 per year. If you only want this Memo, you can subscribe for a month for $5, get the Memo, and then cancel. You will also receive any other memos I put out over the coming 30 days. Journalis…