MNI POLICY: Tankan Key For Gauging Wage Growth; BOJ Cautious

Profit forecasts in September’s Tankan data will help the Bank of Japan gauge the impact of U.S. tariffs on next year’s wage growth, but even potentially inflationary data signals are unlikely to prompt a rate hike this year given the uncertain outlook for global demand, MNI understands.

Markets have priced in roughly a 30% chance of a hike to the 0.5% policy rate at both the October and December meetings, but the BOJ remains mindful of how it became trapped around the zero lower bound of rates in the 1990s, and is only likely to act if inflation jumps to levels, such as above 4%, that threaten overshooting of its target.

MNI reported this week that a hike this year would be improbable unless the yen weakens toward JPY160, though officials stressed the need for closer scrutiny of wage gains. (See MNI POLICY: BOJ 2025 Hike Chances Weak On Wages, U.S. Concerns)

TANKAN FOCUS

Strong corporate profits have fuelled wage price growth in recent years and if profit forecasts in the September Tankan survey due Oct 1, which will form the basis for wage negotiations in fiscal 2026, show only limited damage to corporate profits from U.S. tariffs, officials anticipate further healthy increases in pay, paving the way for eventual, though probably not immediate rate hikes. But they remain wary of the risk that firms may revise forecasts down depending on global demand particularly from the U.S.

Tankan data due Dec. 15 will also be key in assessing whether profits hold up.

Tariff costs will be partly shared by U.S. consumers and distributors but Japanese manufacturers’ profits will also be squeezed. Even so, the BOJ expects wage-hike incentives to remain intact, as profits are strong enough to absorb some costs and labour shortages deepen.

Non-manufacturers are less directly affected by tariffs but face severe labour shortages, and their pay rises have long tracked those at major manufacturers. This broad wage momentum adds to BOJ confidence.