The Bank of Japan (BOJ) board member Naoki Tamura has stated that it is crucial to raise short-term interest rates to "at least around 1%" by the second half of fiscal year 2025. This announcement comes amid a notable increase in Japan's household spending and income, marking a critical point in the country's economic trajectory. Japan's 2025 fiscal year concludes on March 31, 2026, and these developments are seen as pivotal in shaping the nation's financial policies.
Average monthly income per household in Japan rose significantly, reaching 1,179,259 yen, an increase of 7.2% in nominal terms and 2.9% in real terms year on year. Despite this growth, real wages have been on a decline for the past three years, with a 0.2% drop recorded in 2024. The labor organization Rengo, led by President Tomoko Yoshino, emphasizes the need for substantial pay increases. Yoshino advocates for annual pay hikes exceeding the 5.1% growth seen last year and has formally requested at least a 5% increase in this year's "shunto" wage negotiations.
The average household expenditure in December reached 352,633 yen ($2,332), reflecting a 7% rise in nominal terms from the previous year. This figure sharply exceeded Reuters' expectations of a mere 0.2% rise. In real terms, household spending grew by 2.7% year on year, marking its first increase since July 2024. However, the situation is complicated by the persistent fall in real wages.
The BOJ's recent decision to raise its benchmark policy rate to 0.5%, its highest since 2008, underscores the need for careful navigation of economic policies. Investors are closely watching Japan's upcoming spring wage discussions, known as the "shunto" negotiations, which begin in February. Larger companies are expected to respond around mid-March, making these talks critical for assessing the BOJ's future interest rate decisions.
Rengo President Tomoko Yoshino has highlighted the necessity of a wage hike of at least 6% for workers at smaller firms to prevent their incomes from lagging behind those at larger companies. This move aims to ensure equitable income distribution across different sectors.