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On 18 March, the Japanese Trade Union Confederation (Rengo) published first round results of the FY16 Shunto (spring wage negotiations) which saw a moderation in the size of base pay hikes. According to Rengo, the weighted average headline wage revision rate came in at 2.08%, down from 2.43% in the first round of the FY15 Shunto. The "base-up" rate in the FY16 first negotiating round was 0.47%, about 0.3ppt lower than last year.
The decline in the headline Shunto revision rate should be particularly disappointing for Bank of Japan Governor Kuroda, who had publicly placed a great deal of faith in the fact that corporates would raise wages aggressively in this year's Shunto, fostering self-sustaining consumption and price growth.
For the Bank of Japan, wage growth is also a crucial factor in attaining its 2 percent inflation target and the Shunto results so far are unlikely to satisfy BoJ officials.
With wage increases far short of the level required to boost trend inflation to 2%, BoJ will likely have to push back, once again, its timing for achieving the CPI target (currently H1 FY2017), most likely at the 28 April monetary policy meeting. There is a high likelihood of additional easing next month.
