Japanese Companies to Significantly Raise Wages Next Year... Major Investors Buy Yen Amid Expectations of End to Yen Weakness (Comprehensive)

"Next Year's Wage Increase Rate Expected to Be Higher Than This Year"
Expectations for End of Yen Weakness Amid Wage and Price Increases
PIMCO Starts Buying Yen from 140 Yen Range

There is a forecast that major Japanese companies will significantly raise wages again next year, following this year. If wage increases lead to domestic demand stimulation and stable price rises, it is expected that the Bank of Japan (BOJ) will begin to phase out its accommodative monetary policy. Major global investment firms are also actively buying yen in preparation for the BOJ's future shift to tightening policies.

Japanese Companies Expected to Raise Wages by 7% Next Year

According to major foreign media on the 21st, Suntory Holdings, a leading Japanese beverage company, plans to raise the salaries of about 7,000 employees by 7% next year, following this year. This is to adjust wages in line with inflation and to secure the necessary workforce. Meiji Yasuda Life Insurance will also increase the average wages of 10,000 employees by about 7% in April next year. Big Camera, an electronics retailer, will raise the salaries of 4,600 regular employees by up to 16%.

Amid pressure from the Kishida Fumio Cabinet, which has pledged to take the lead in raising wages, these companies have decided to increase wages. Experts expect this trend to continue, with Japanese companies likely to raise wages next year at a level exceeding this year. According to a survey by major foreign media, 6 out of 10 economists expect the wage increase rate of major Japanese companies next year to be higher than this year. The average wage increase rate for these companies this year is 3.58%. Labor unions have set a target wage increase of 5-6% for next year.

[Image source=Yonhap News]

If wage increases lead to consumption stimulation, there is a high possibility of changes in the BOJ's accommodative monetary policy. BOJ Governor Ueda Kazuo has stated that if a virtuous cycle structure is established where wages rise and prices stably increase by 2%, the BOJ may consider ending its monetary easing policy. Major foreign media reported, "If the strong wage growth seen this year continues throughout next year, the BOJ will end its easing policy," adding, "The market expects the BOJ to abolish the negative interest rate policy around April next year, when wage increase trends become clear."

Expectations for End of Yen Weakness Amid Wage and Price Increases... PIMCO Says "Buy Yen"

The fact that the consumer price inflation rate is exceeding expectations also supports this outlook. Japan's consumer price index in September rose 2.8% compared to a year earlier. Although the rate fell below 3% for the first time in 13 months, it exceeded the forecast (2.7%).

Wage increases are also expected to support the lower bound of inflation. Previously, Richard Clarida, former Vice Chair of the U.S. Federal Reserve (Fed), predicted that if Japan's inflation rises stronger than expected, the BOJ would revise its yield curve control (YCC) policy within the year. He also anticipated that the BOJ could raise the short-term policy rate from the current -0.1% to 0% early next year.

PIMCO, the world's largest bond manager, is also reportedly expecting the BOJ to end its monetary easing policy and is actively buying yen. PIMCO began building yen long positions when the yen's value fell to the 140 yen per dollar level. The yen-dollar exchange rate has fallen nearly 16% this year and is currently trading around 149 yen.

Emmanuel Charef, a PIMCO fund manager, recently told Bloomberg, "As Japan's inflation continues to rise and consistently exceeds the target, Japan will want to move toward abandoning or modifying the YCC policy," adding, "Ultimately, an interest rate hike may be necessary."

Another factor behind PIMCO's yen purchases is the expectation that if the yen-dollar exchange rate breaks through the 150 yen level, intervention by Japanese foreign exchange authorities will occur, making further yen depreciation unlikely. Manager Charef said, "I think Japanese authorities feel significant pressure around the 150 yen level. When the yen previously touched the 150 yen level, the authorities were effectively forced to intervene. This time, they are likely concerned about the same situation."

This content was produced with the assistance of AI translation services.