MNI BRIEF: BOJ Sees Caution Among Smaller Firm On Wage Hikes

Some Bank of Japan branch managers noted that smaller firms remain cautious about raising wages due to challenging profit conditions, but many also reported plans to implement significant wage hikes more broadly, driven by the intensifying labour shortage, the BOJ's quarterly regional economic report released Monday showed.

The report also indicated that price increases continued due to the earlier rise in import costs, with many firms raising retail prices in response to higher rice costs.

Simultaniously, some managers observed firms are struggling to pass rising labour costs on to consumers. Others warned that businesses are either lowering prices or holding off on hikes due to consumers’ cautious spending and reliance on savings.

BOJ officials are closely watching how large firms' substantial wage hikes are trickling down to smaller businesses, and the overall findings are broadly in line with their expectations. (See MNI POLICY: BOJ May Rate Hike Hopes Fade As Risk Mounts)

While the report supports the Bank’s policy normalisation outlook, recent sharp declines in global stock markets and heightened trade uncertainties from U.S. tariffs could delay any near-term policy-rate increases.