Another interest rate hike signal? Japan's foreign exchange affairs chief: The weakening yen will drag down real wage growth

According to the Zhitong Finance APP, Atsushi Mimura, the head of foreign exchange affairs at Japan's Ministry of Finance, warned on Monday about the foreign exchange trends and their negative impact on Japan's goal of achieving real wage growth. The Japanese government estimates that a 10% depreciation of the yen would raise the inflation rate by 0.3%. Mimura stated that when inflation-adjusted wage growth hovers around 0%, foreign exchange "will have a decisive impact" on real wages.

The weakness of the yen has been a headache for Japanese policymakers, as it raises import costs, accelerates inflation, and suppresses consumption. Some analysts blame the Bank of Japan's ultra-low interest rates and slow pace of interest rate hikes for the yen's weakness.

Mimura said, "For the United States, the issue of yen depreciation may be a trade balance issue. For us, it is indeed an inflation issue." "Therefore, this is one of the problems we must work hard to further address in the future."

Mimura also pointed out that wage increases are one of the highlights for Japan and emphasized that this is one of the government's top policies. He stated that in this year's annual wage negotiations, "we have heard strong prospects for salary increases from both large enterprises and small and medium-sized enterprises."

Multiple Factors Support the Prospect of Bank of Japan Interest Rate Hikes

It is reported that a survey released on February 20 supports the prospect of further interest rate hikes by the Bank of Japan. According to a survey by Japanese market research company Teikoku Databank, among 11,000 Japanese companies surveyed, about 61.9% plan to raise employee wages in the new fiscal year due to efforts to recruit and retain employees, the highest percentage ever recorded. Additionally, about 56% of the surveyed companies indicated plans to increase base salaries, also the highest level since Teikoku Databank began tracking this issue in 2007.

Although the survey did not specify the planned wage increase amounts for Japanese companies, it indicates that the momentum for wage growth in Japan continues and will have a broader impact. This is undoubtedly a positive signal for the Bank of Japan, as its goal is to achieve a virtuous economic cycle of rising wages and spending stimulating demand-driven price increases. Stable wage growth in the new fiscal year for Japanese companies will keep the Bank of Japan on the path to further interest rate hikes.

As the Bank of Japan considers its future interest rate path, wage data remains a key indicator of its focus. The market is closely watching the Japanese wage negotiations, which will peak in March, to assess the sustainability of wage growth. Surveys show that analysts estimate the median wage increase for this year's Japanese spring wage negotiations to be 5%, close to last year's 33-year high.

In addition to wage growth, a series of economic data indicating economic growth and rising inflation, as well as hawkish statements from Japanese policymakers, are also important factors driving the rising expectations for interest rate hikes by the Bank of Japan. Furthermore, some analysts believe that U.S. President Trump's focus on addressing trade imbalances is favorable for the Bank of Japan's interest rate hikes, as it would weaken the Japanese government's historical resistance to yen appreciation and interest rate hikes, allowing for a more lenient stance on yen appreciation issues. Currently, economists generally expect the Bank of Japan to raise the benchmark interest rate again in the summer