FX.co ★ BoJ’s Ueda Notes Broader Wage Gains, Signals Hike Path

Bank of Japan Governor Kazuo Ueda has indicated that conditions are maturing for another interest rate increase, highlighting the catalyst of accelerating wage growth and a tightening labor market. At the Federal Reserve's Jackson Hole symposium held on Saturday, Ueda addressed the issue of Japan’s prolonged period of stagnant wages, attributing it to deeply ingrained deflationary expectations. He noted that the global surge in inflation following the COVID-19 pandemic has disrupted this balance. “Crucially, wage growth is now extending from large corporations to small and medium-sized enterprises,” he stated, noting that “unless there is a significant negative demand shock, the labor market is projected to remain tight, maintaining upward pressure on wages.” Ueda also emphasized the role of increased labor mobility and demographic-driven shortages as significant factors compelling firms to increase salaries. Following its withdrawal from an ultra-loose monetary policy last year, the Bank of Japan raised interest rates to 0.5% in January, maintained them in July, and revised its inflation outlook—thereby raising expectations for another rate increase later in the year.