While some Bank of Japan policymakers are optimistic that wages data next year will confirm a virtuous wage-price cycle underpinning the achievement of the 2% inflation target, officials are wary of the risk that major firms will prefer to pay one-off bonuses rather than make large base pay increases, prompting smaller firms to also restrain their pay offers, MNI understands.

Q3's GDP data, which recorded a second straight fall in private consumption and capital investment, shocked BOJ officials, particularly as the Japanese economy cannot rely on overseas demand with both the U.S. and China likely to slow in 2024, which has driven the concern over pay increases.

Bank officials still expect wage hikes at major firms next year to increase pressure on smaller companies to raise wages amid intensifying macro-level labour shortages due to the declining birthrate and aging population, but a shift to bonus payments could dash those hopes.

BIG FIRM TRENDSETTERS

Leader firms with a large number of union members conducted high levels of base-pay increases this year and many other firms followed. Some companies, such as Bic Camera and Suntory Holdings, have already revealed 7% pay increases next year.

One BOJ board member noted base-pay negotiations could exceed this year's agreement, according to the summary of opinions from the Oct. 30-31 meeting. “It seems that achievement of the price stability target is coming into sight," the member said. "The second half of fiscal 2023 will be an important period for determining whether the target will be achieved.”

Another member noted that "close attention needs to be paid both to next year's annual spring labor-management wage negotiations and to whether the wage increases will be reflected in prices.”