Kazuo Ueda, Governor of the Bank of Japan, expressed confidence in the Japanese economy at the Jackson Hole meeting where the 'global economic presidents' gather, suggesting the possibility of additional interest rate hikes this year. He cited 'wage inflation pressure' as the reason. The wage growth in Japan, which had stagnated for decades, is interpreted as a signal marking the end of Japan's deflationary economy, symbolized by the 'lost 30 years.'
Governor Ueda diagnosed that the wage increase trend in Japan is appearing broadly at the Federal Reserve's annual economic symposium held on the 23rd in Jackson Hole, Wyoming (local time). He noted, 'The wage increases are spreading from large corporations to small and medium-sized enterprises.'
Governor Ueda explained that previously, due to the 'entrenched deflationary expectations', both Japanese corporations and consumers expected that prices would not rise, causing corporations to hesitate on price and wage increases. However, he clarified that the global inflation that emerged after the COVID-19 pandemic acted as an external shock to the Japanese economy, creating an opportunity to escape deflation.
Now, the most urgent economic issue facing Japan is 'labor shortages' rather than chronic deflation. Governor Ueda projected, 'Unless there is a significant negative demand shock, the labor market will remain tight and continue to exert upward pressure on wages.' This indicates that the demographic changes that began in the 1980s are now manifesting as severe labor shortages and ongoing wage inflation pressure.
Economic indicators in Japan support Governor Ueda's remarks. In the annual wage negotiations (Shuntō) conducted by Japanese corporations and labor unions every spring, high levels of wage increases have been achieved for three consecutive years. In July, excluding fresh food, Japan's consumer prices rose 3.1% compared to the same month last year. This figure exceeds market expectations (3.0%) and is significantly above the Bank of Japan's target of 2%.
Investors predicted that the Bank of Japan would resume interest rate hikes within this year. Reuters reported that in a survey of macroeconomic experts, about two-thirds of respondents expected the Bank of Japan to increase the benchmark interest rate by at least 0.25 percentage points by the end of the year.
The Bank of Japan ended its negative interest rate policy in March, after 17 years, and began normalizing its monetary policy. However, it paused the interest rate increase cycle due to concerns over the impact of U.S. tariff policies on Japan's export economy. With some trade uncertainties between the U.S. and Japan alleviated by the end of July, it is analyzed that an environment has been established for the Bank of Japan to return to monetary tightening.
Governor Ueda stated, 'We will continue to reflect changes on the supply side in conducting monetary policy.'