MNI POLICY: BOJ Sees Minimum Wage Hike Bolstering CPI

Bank of Japan officials expect upcoming administrative minimum wage hikes to lift pay for workers near the threshold, adding pressure on regular wages and reinforcing the foundation for achieving the 2% inflation target in fiscal 2026, MNI understands.

Officials have begun analysing how higher minimum wage hikes feed through to overall wage growth and strengthen the wage-price cycle. Combined with higher consumer prices this year, the increases are seen supporting settlements in fiscal 2026, helping the bank achieve its target. 

The weighted average of minimum wage hikes this year rose to a record JPY1,121, up from JPY1,055. While increases have typically taken effect from October in the past, some prefectures will delay adjustments until January or later.

WAGE RISKS

Still, officials caution some firms may cite weaker profits from trade headwinds to hold back on pay rises, even as major manufacturers report record earnings from past yen weakness and despite wage-hike incentives remaining largely intact. MNI reported last week profit forecasts in September’s Tankan data will help the BOJ gauge the impact of U.S. tariffs on next year’s wage growth. (See MNI POLICY: Tankan Key For Gauging Wage Growth; BOJ Cautious)

Pay settlements at leading manufacturers – particularly Toyota – continue to anchor wage decisions across the sector and filter down to smaller firms. Officials are watching large companies’ year-end strategies and winter bonus decisions, a key touchstone for fiscal 2026 negotiations.

Labour shortages are also amplifying wage pressures, especially at smaller firms. 

Some regional businesses are struggling to raise pay on weak profits, even as others enjoy solid earnings. BOJ officials expect more clarity on these challenges at the Oct. 6 branch managers’ meeting and related hearings. Concerns are rising that minimum wage hikes could threaten the viability of some small firms. Bankruptcies linked to labour shortages climbed to 202 in January-June, from 182 a year earlier, marking a record high for the second straight year, Teikoku Databank reported.