Crucial for the Bank of Japan's interest rate hike path! Next year's "Shunto" prelude: Japan's largest labor union plans to seek a 5% salary increase

According to the Zhitong Finance APP, Japan's largest labor union federation (Rengo) will continue to push for at least a 5% wage increase in next year's salary negotiations, while newly appointed Prime Minister Kishi Sanae is also working to maintain the country's wage growth momentum. According to the targets outlined in the overall policy framework released on Thursday, Rengo will aim for a total salary increase of 5% or more in the negotiations starting later this year, which includes a 3% increase in base wages. The same target was set in last year's annual negotiations, ultimately achieving an average overall increase of 5.25% by 2025. These targets will be officially confirmed in late November.

If Japan fails to maintain the momentum of wage increases, it will impact Kishi Sanae's term and the policy direction of the Bank of Japan. The lack of growth in real wages, due to ongoing inflation impacting Japanese households, is likely to trigger more public dissatisfaction, and the Bank of Japan may also find it difficult to maintain the pace of its tightening policy.

Despite the unions achieving the largest nominal wage increase in over 30 years in recent negotiations, real wages have not kept pace with this increase. In the past 12 months, there have only been two months where real wages increased, due to persistent inflation.

Earlier this week, Kishi Sanae instructed her cabinet to develop an economic plan that will include measures to promote wage growth and alleviate the pressures from rising prices. According to this directive, the plan is likely to include enhancing the profitability of small businesses and promoting investments that save labor costs.

Minoru Kiuchi, the Minister responsible for overseeing the economic plan, stated on Wednesday that the Japanese government must continue to support households until real wages are sufficiently increased.

The wage growth gap between large and small enterprises is also widening, indicating that as small subcontractors struggle to pass on higher costs to customers, the wage growth trend outside of Japan's core enterprises has gradually slowed. A report from Teikoku Databank shows that in July, the costs passed on by Japanese suppliers to customers accounted for less than 40% of the rising costs, the lowest level since the data agency began conducting this survey.

For small and medium-sized enterprises, Rengo's goal is to raise employee wages by at least 6%. In its latest framework, the union urges smaller unions to review their achievements over the past few years and push for further improvements. Last year, under the same goal, the average wage increase for smaller enterprises was 4.65%.

Ongoing wage growth remains a key focus for the Bank of Japan. The Bank of Japan believes that increasing wages is crucial for achieving a virtuous economic cycle, which is a necessary condition for its continued tightening of monetary policy. Bank of Japan Governor Kazuo Ueda stated earlier this month, "The mechanism for moderate increases in wages and prices will continue." He reiterated that if the economy and prices develop as expected, the central bank will continue to gradually raise interest rates The Bank of Japan will hold a monetary policy meeting next week, and only 10% of the economists surveyed believe that there will be an interest rate hike.

Despite calls from the Japanese government and labor unions, the next round of wage negotiations still faces many challenges. One of them is the higher tariffs imposed by U.S. President Trump, which have squeezed profit margins for exporters. The outlook for the automotive industry appears very bleak due to the increased tariffs from the U.S., which is a worrying signal for an industry that typically serves as a barometer for annual wage negotiations. According to the International Monetary Fund, Japanese automakers have reduced car prices in North America by about 20% to absorb additional costs and are facing billions of dollars in losses due to the trade war, threatening their ability to provide adequate compensation to employees.

With numerous challenges ahead, economists generally expect that wage increases in the upcoming round of negotiations will be lower than the previous year. A survey conducted earlier this month by the Japan Economic Research Center indicated that about 36 economists believe that the average overall wage increase in the upcoming negotiations will be 4.81%