By Leika Kihara
TOKYO (Reuters) – The Bank of Japan (BOJ) said labour shortages were prompting smaller firms to raise wages and pass on rising costs through price increases, signalling confidence the country was making progress towards achieving its 2% inflation target in a sustainable manner.
The upbeat assessment, made in a summary of discussions at the BOJ’s regional branch managers meeting, may boost the case for the central bank to raise interest rates as early as its next meeting on July 30-31.
“Many regions reported that strong wage increases by large firms in wage negotiations this year were spilling over to small and medium-sized firms,” according to the summary of the BOJ’s quarterly meeting.
The assessment compares with that of the previous meeting in April, when the BOJ said there were “hopeful signs” that solid wage increases among large firms would spread to smaller companies.
Some smaller regional companies decided to prioritize wage increases to retain or hire workers, even if they did not make enough profit to offset the higher cost, he said.
Many regions also saw firms passing on rising costs, or considering doing so, particularly those in the service industry, the BOJ said in the summary.
The BOJ said consumption remained “broadly firm,” with robust spending by inbound tourists offsetting weak household consumption hit by rising living costs.
The central bank’s view on wage developments will be one of the key factors its board will examine at this month’s policy meeting when setting interest rates as well as new quarterly growth and inflation projections.
Government data released Monday showed Japanese workers saw their average base pay rise 2.5% in May, the fastest pace in 31 years, with part-time workers posting particularly strong gains.