Japan's workers are set for big pay increases after 'shunto' negotiations. This is why it matters

Japan's largest federation of trade union, Rengo, on Friday said that workers at the country's biggest firms are set for the sharpest wage spike in more than three decades, setting the stage for the central bank to exit the world's last negative rates regime.

Rengo said its seven million members are poised to receive a weighted average of 5.28% in salary increments in fiscal year 2024, according to the first of its several provisional tabulation of this year's negotiations at its constituent unions.

The world's largest automaker Toyota on Wednesday had agreed to the biggest annual pay increase for workers in 25 years.

Market speculation reached a fever pitch this week as various corporate giants announced robust salary increments, in some instances exceeding the unions' demands.

The rally in Japanese equities has stalled, with the yen strengthening against the dollar and 10-year Japanese government bond yields hitting their highest in three months.

There are expectations the Bank of Japan may hike rates for the first time since 2007 at its policy meeting next week — instead of waiting until its April meeting — while also exiting negative rates.

Bank of Japan Governor Kazuo Ueda has repeatedly said the outcome of this year's wage negotiations will influence the central bank's decision on when to exit the world's last negative interest rate policy.

Even though "core core inflation" — which excludes food and energy prices — has exceeded its 2% target for more than a year, the BOJ has barely budged from its current ultra-accommodative monetary policy posture that has been in place since 2016.

The BOJ's thinking is that increased wages will stimulate consumer spending, lifting prices in a sustainable manner, and allowing more room