BOJ to release quarterly report that may offer clues on wages

While inflation has exceeded the BOJ's 2 per cent target for more than a year.

The BOJ remains an outlier among a global wave of central banks tightening monetary policy. (Image source: Reuters)

The Bank of Japan will release a regional economic report on Thursday that may offer clues on whether companies across the country will raise wages next year, and help lay the groundwork for phasing out the central bank's massive monetary stimulus.

The report, due at 2 p.m. (0500 GMT), will be closely scrutinised by the central bank's nine-member board at its Oct. 30 to 31 policy meeting, which will compile fresh quarterly growth and inflation projections.

BOJ Governor Kazuo Ueda has sought to reassure markets that no change in policy is imminent, but creeping inflation and rising Japanese yields are raising market expectations that the bank will soon end its controversial bond yield control policy.

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Thursday's regional report, issued once every quarter after a meeting of BOJ branch managers, will give an overview of economic conditions across all regions of Japan, based on hearings conducted with companies nationwide..

The report is drawing more attention than usual this time for possible early clues on 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 central banks tightening monetary policy, 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 per cent.

While inflation has exceeded the BOJ's 2 per cent target 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.

Japanese wages remained stagnant for decades until last year, when rising raw material costs pushed up inflation and piled pressure on firms to compensate employees with higher pay.

Major companies agreed to average pay hikes of 3.58 per cent this year, the highest increase in three decades. The key for policymakers, however, is whether companies keep hiking wages next year, including smaller firms and across regions.

Japan's largest labour organisation, Rengo, plans to ask in next spring's negotiations for a total pay hike of more than 5 percent, public broadcaster NHK reported on Tuesday, citing an unnamed official. Rengo declined to comment when approached by Reuters, but is scheduled to hold a news conference on its policy for next year's wage talks later on Thursday.

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