The Bank of Japan offered a more optimistic view of regional economies on Thursday, saying wage hikes were broadening, underscoring its growing conviction of progress towards achieving an inflation target of 2%.
In a report, the bank's regional branch managers said many firms were undecided on the quantum of next year's pay hikes, however, highlighting uncertainty whether conditions would allow the central bank to phase out its massive stimulus.
"They wanted to scrutinise price developments and what their competitors could do in deciding on the pace of wage hikes," the managers said in the report.
It cited firms as expecting hikes in next year's wage talks, spurred by structural labour shortages.
In a separate quarterly report on regional economies, the BOJ revised up its assessment for six of the country's nine areas, saying all regions were seeing their economies "pick up, or recover moderately".
The reports will be closely scrutinised by the bank's nine-member board at a policy meeting on Oct. 30 and 31 that looks to compile fresh projections on quarterly growth and inflation.
BOJ Governor Kazuo Ueda has sought to reassure markets that no change in policy is imminent, but creeping inflation and rising domestic yields are fanning market expectations that the bank will soon end its controversial bond yield control policy.
The quarterly regional reports provide an overview of economic conditions nationwide, based on hearings with companies.
The report has drawn more attention than usual this year for possible early clues to whether wage hikes will continue next year and broaden out to smaller firms.
That would be seen as a key condition for the BOJ to dial back its stimulus, analysts say.
The BOJ remains an outlier among a global wave of monetary policy tightening by central banks, as it focuses on supporting the economy with a combination of negative short-term interest rates and a cap on the 10-year bond yield around 0%.
While inflation has exceeded the BOJ's target of 2% for more than a year, Ueda has vowed to keep interest rates ultra-low until a more demand-driven, durable upward price trend takes hold, backed by sustained wage increases.
Until last year Japanese wages had stayed stagnant for decades, but rising raw material costs pushed up inflation and piled pressure on firms to hike salaries.
Average pay hikes of 3.58% agreed by major companies this year were the highest in three decades. but the key for policymakers is whether the trend continues next year, spreading to smaller firms and across regions.
Japan's largest labour organisation, Rengo, plans to seek a total pay hike of more than 5 percent in talks next spring, public broadcaster NHK said on Tuesday, citing an unidentified official.
Approached by Reuters, Rengo declined to comment, but is set to hold a news conference later on Thursday on its policy for next year's talks.
