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The Bank of Japan (BOJ) has signaled a promising trend of wage hikes and price increases among smaller firms, driven by labor shortages.
This development points to progress in Japan's quest for sustained 2% inflation, potentially paving the way for an upcoming interest rate hike. This is a marked shift from the more cautious tone taken in April, where the bank observed "hopeful signs" of wage increments trickling down to smaller firms. Notably, despite not always turning a profit, several regional SMEs have opted to elevate wages as a strategy to retain or attract essential workers.
The bank's report also highlights a trend of companies, particularly within the services sector, either passing on rising costs to consumers or actively contemplating such moves. Meanwhile, household consumption remains weak under the pressure of escalating living costs, yet the overall consumption landscape is buoyed by the robust spending of inbound tourists.
As the BOJ's board convenes this month to review interest rates and updates on growth and inflation forecasts, the central bank's insights on wage growth will be crucial in their deliberations. On the back of these developments, recent government data shows a promising 2.5% rise in average base pay in May, the swiftest growth rate in 31 years, with part-time workers seeing notable increases.
