Early signs from Japan’s upcoming annual wage negotiations suggest another round of robust pay increases, despite profit pressures from U.S. tariffs. This has fueled speculation that the Bank of Japan (BOJ) may raise interest rates further. The wage outlook gained attention after BOJ Governor Kazuo Ueda stated he wanted more data on the initial momentum of next year’s talks, especially whether firms affected by tariffs would continue raising wages.
Labour unions have made it clear they will demand substantial pay hikes again, which could support private consumption and strengthen the BOJ’s confidence to increase rates without hindering economic recovery. Despite recent large increases, real wages have remained negative, as core consumer inflation stays above the BOJ’s 2% target.
Rengo, Japan’s largest union umbrella group with 7 million members, is advocating for wage hikes of 5% or more in 2026, following a similar demand in 2025 that resulted in the largest increase in 34 years. The auto industry, hit hard by tariffs, also plans to push for higher wages, despite profit squeezes.
The typical process begins with unions submitting demands late in the year, followed by negotiations early next year, with settlements announced by March. Companies might not fully meet union demands, especially with tariffs expected to intensify, clouding export prospects. However, manufacturers remain optimistic, with a recent Reuters poll indicating strong sentiment, buoyed by a weak yen and steady orders.
A tight labour market and labour shortages, especially in restaurants, are likely to drive wage increases. For instance, Watami plans multi-year hikes averaging 7% annually for about 1,200 employees.
Also Read: Malaysia Insurance Growth Driven by Digital & Reforms
Economists project average wage hikes of around 4.88% in 2024, up from earlier estimates, with some expecting hikes over 5%. Ueda has indicated that further rate hikes will depend on upcoming data, and some company hints about 2026 wages may emerge soon, especially during his December speech in Nagoya.
