Japan’s back-to-back wage bonanza would open door for BOJ exit

TOKYO, Nov 20 (Reuters): Japan's big employers are set to follow this year's bumper pay hikes with another round in 2024, which are expected to help lift household spending and give the central bank the conditions it needs to finally roll back massive monetary stimulus.
Early indications from businesses, unions and economists suggest the labour and cost pressures that set the stage for this year's pay hikes - the largest in more than three decades - will persist heading into next year's key spring wage talks.
The head of major beverage maker Suntory Holdings Ltd, for example, plans to offer employees average monthly pay hikes of 7 per cent in 2024 for the second straight year, to retain talent in a tight labour market and offset rising inflation.
Meiji Yasuda Life Insurance Company intends to raise annual pay by 7 per cent on average for about 10,000 employees from next April, while electronics retailer Bic Camera is set to raise 4,600 full-timers' pay by up to 16 per cent.
"What's going on is a big paradigm shift away from deflation and towards inflation," Suntory Holdings CEO Takeshi Niinami, who also sits on Prime Minister Fumio Kishida's top economic advisory council, told Reuters.
"Given the fast-changing landscape, I believe those who move fast (with wage hikes) should become competitive."
Those announcements come as Kishida heaps pressure on companies to hike pay to offset the pain on households from rising living costs.
The back-to-back annual pay bumps would also provide Bank of Japan Governor Kazuo Ueda with one of the pre-conditions he needs to dismantle the extreme monetary stimulus of the past decade: sustainable wage growth.
"A combination of the chronic labour crunch and stubborn inflation will lead next year's wage negotiations to result in the same or even higher pay from this year," said Hisashi Yamada, labour expert and professor of Hosei University.
OECD data shows average wages have barely risen in Japan for about past 30 years as chronic deflation and prospects of prolonged low growth discouraged firms from raising pay.
The tide began to shift after supply constraints caused by the pandemic and the Ukraine war led to sharp rises in raw material prices, forcing firms to pass on higher costs to consumers.
With inflation having held above the BOJ's 2 per cent target for more than a year, companies have faced unprecedented pressure to compensate employees with pay hikes to retain and lure talent.