Japanese companies record the largest pay increase in 34 years, providing key support for the central bank's interest rate hike process

The Zhitong Finance APP noted that Japan's largest labor union group, "Rengo," announced on Thursday that Japanese companies have agreed to raise wages by 5.25% this year, marking the largest increase in 34 years. Under the dual pressures of inflation and labor shortages, sustained wage increases have become a new norm that companies must face.

This strong wage growth continues the upward trend seen in recent years—last year's average wage increase was 5.10%, and the year before that was 3.58%, indicating that this country, which has experienced decades of wage stagnation, is forming a stable wage growth mechanism. Rengo, which has 7 million members, pointed out that the current wage increase momentum has formed a sustainable positive cycle.

"A new consensus is forming in the business community: wage increases must exceed the level of inflation," said a government official who wished to remain anonymous. "This has become the new norm." On the same day, Japan's largest business lobbying group, Keidanren, released data showing that this year's summer bonuses for major companies increased by an average of 4.37%, reaching a record 990,848 yen (approximately $6,889).

Economists expect that under the pressure of structural labor shortages and ongoing inflation, wage increases will remain around 5% next year. However, U.S. tariff policies pose significant uncertainty for corporate profitability. Stable and sustainable wage growth is crucial for maintaining a consumption-driven recovery, which is also one of the core prerequisites for the Bank of Japan to resume interest rate hikes.

Mizuho Research Institute predicts that if oil prices fall and partially offset the impact of U.S. tariffs on corporate profits, wage increases could reach 4.7% next year.

"As the wage growth momentum is basically confirmed until the first quarter of next year, we expect the Bank of Japan to start raising interest rates in that quarter," said Saisuke Sakai, chief economist at Mizuho Research.

The Bank of Japan ended its large-scale stimulus program last year and raised short-term interest rates to 0.5% in January this year.

Surveys show that just over half of economists expect the Bank of Japan's next 25 basis point rate hike to occur in early 2026. The continuously strengthening wage data is providing strong support for the normalization of monetary policy, but changes in the global trade environment could become a new disruptive factor