Japanese workers saw their nominal wages rise at the fastest pace in nearly 30 years, a trend that could prompt the Bank of Japan (BOJ) to raise interest rates as early as December. The Labour Ministry reported on November 6 that nominal wages climbed 4.6% in September compared to the same month last year, the largest increase since 1997. Base pay rose 3.7%, while a more stable measure excluding bonuses and overtime saw a record 3.1% gain for full-time workers.
Real cash earnings, adjusted for inflation, increased 2.2% from a year earlier, accelerating from a revised 1.6% gain in August and surpassing the consensus estimate of 1.3%. Economists had anticipated a slowdown due to fewer working days, but the data suggests sustained momentum in pay growth. Labour unions are preparing for annual wage negotiations set to conclude in March, with early indications pointing to continued strong demands for higher wages.
The largest labour union federation in Japan has urged its members to seek wage increases of around 6% for 2027, a more ambitious target than the raises secured in 2026. Workers represented by the group have achieved raises exceeding 5% for three consecutive years, signaling a shift from decades of wage stagnation. Yasunari Tanaka, a researcher at Mitsubishi Research Institute, expects wage increases in the next round of negotiations to remain around 5%, similar to the pace seen in 2026.
Sustained upward pressure on wages is expected to keep the BOJ on track to raise its benchmark rate further. The median economist forecast predicts the terminal rate for the current cycle at 1.75%, implying two more quarter-point increases. BNP Paribas and J.P. Morgan Securities are among those forecasting the benchmark rate will reach 2.5%. Bloomberg economist Taro Kimura noted that while wage growth is likely to accelerate next year, caution is warranted due to volatile AI-related stocks.