Japanese companies agreed to raise wages by 5.25% this year, marking the biggest pay hike in 34 years, the country's largest labour union group Rengo said on Thursday, as inflation and labour shortages raise pressure for continued salary increases.
The robust wage growth follows an average increase of 5.10% last year and 3.58% the year before, suggesting that solid salary growth is becoming the new norm in a country where wages were stagnant for decades. Rengo has 7 million members.
"There is emerging consensus among companies that a pay raise that exceeds inflation is a must," a government official said on condition of anonymity. "It's the new norm now."
Separately, Japan's biggest business lobby Keidanren said on Thursday the average summer bonus payment at major companies this year increased by 4.37% from the previous year to a record 990,848 yen ($6,889).
Economists expect the pace of wage growth to stay near 5% next year as structural labour shortages and persistent inflation will continue to pile pressure on firms to compensate employees with higher pay, although U.S. tariff policies cast strong uncertainties.
Prospects of steady wage hikes are crucial for sustaining a consumption-led recovery - a prerequisite for the Bank of Japan (BOJ) to resume interest rate hikes.
Mizuho Research & Technologies predicts a 4.7% wage increase next year, assuming that lower oil prices would help cushion the impact of sweeping U.S. tariffs on corporate profits.
"As the wage hike momentum is likely to be confirmed in January-March, we expect the BOJ to start raising interest rates during that quarter," Saisuke Sakai, chief economist at Mizuho Research, said.
The BOJ ended its massive stimulus programme last year and in January raised short-term rates to 0.5%. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026.
