JACKSON HOLE, Wyoming — Bank of Japan Governor Kazuo Ueda said wage hikes are spreading beyond large firms and likely to keep accelerating due to a tightening job market, signaling his optimism that conditions for another interest rate hike were falling into place.
The remarks are likely to reinforce market expectations that the central bank will resume a rate hike cycle, which was put on pause due to concern over the fallout from US tariffs on the export-reliant economy, later this year.
Despite Japan’s dwindling working-age population, wage growth remained stagnant for decades due to “entrenched deflationary expectations” that discouraged companies from raising prices and pay, Ueda said at a panel held on Saturday during the Federal Reserve’s annual conference in Jackson Hole, Wyoming.
Now, wages are rising and labor shortages have become “one of our most pressing economic issues,” as global inflation caused by the COVID-19 pandemic served as an external shock that broke Japan out of a deflationary equilibrium, he said.
“Notably, wage growth is spreading from large enterprises to small and medium enterprises,” Ueda said.
“Barring a major negative demand shock, the labor market is expected to remain tight and continue to exert upward pressure on wages,” he said.
Ueda spoke as part of a panel including Bank of England Governor Andrew Bailey and European Central Bank President Christine Lagarde addressing labor market challenges developing in their economies.
Japan has seen three straight years of high wage increases in annual spring wage negotiations between companies and unions.
