(Bloomberg) -- Prime Minister Fumio Kishida said wage growth this year is on track to outpace last year, after Toyota Motor Corp. and a raft of union groups released strong annual pay deal results less than a week before the central bank decides whether to raise interest rates for the first time since 2007.

“I think we can confirm a positive trend is in place to shift the economy from a cost-cutting model to the next stage,” Kishida said. 

The premier has made wage increases a key focus of his administration as he tries to find ways to soften the blow of ongoing inflation on households and prop up his sagging public support levels. 

For the Bank of Japan, evidence of stronger wage growth that can support a positive inflation cycle is viewed as a key requisite for scrapping the world’s last remaining negative interest rate. 

BOJ officials will decide whether to raise rates in March after officials see the initial tally from spring wage talks, with the outcome on rates currently too close to call, according to people familiar with the matter. 

Read More: BOJ Is Said to Mull March Hike With Outcome Too Close to Call

Toyota, Japan’s biggest company by market capitalization, said it agreed to its union’s pay demands in full with record raises. An earlier report to that effect boosted the yen and weighed on Japanese stocks. Other unions representing groups from manufacturers and metalworkers to electrical and auto sector staff also unveiled larger wage increases than last year.

Japan’s largest union federation, Rengo, will collate annual pay deal results and release its first tally for this year on Friday. Economists and market players see that figure as a key steer on whether the BOJ will move on rates on Tuesday.

The results may be surprisingly good, according to Shunsuke Kobayashi, chief economist at Mizuho Securities Co.

“Overall pay growth may top 5% with a bump in base pay alone around 3.5%,” he said. “If you ask me if that level will prompt the BOJ to end its negative rate next week, my answer is yes.”

Rengo already said last week that its affiliated members demanded an average wage increase of 5.85% this year versus 4.49% a year ago, when the process resulted in a preliminary 3.8% bump.

Last year’s Rengo result was the biggest increase in decades, and if this year’s tally tops that figure, as economists expect, it will send a strong green light to the BOJ to hike rates. 

“Today’s figure far exceeded our initial expectations when we formulated our demand,” said Katahiro Yasukochi, chairman of the Japanese Association of Metal, Machinery and Manufacturing Workers after initial results showed raises of 5.32%.

“Governor Ueda said the spring wage talks is a key event. If results beat last year’s 3.8%, I think the BOJ should end the negative rate,” said Mari Iwashita, chief market economist at Daiwa Securities Co. “They can move in April, too, but they will have to raise interest rates by making excuses as they will likely have to lower their growth outlook.”

Read more: Japan’s Wage Talks Near Conclusion as BOJ Mulls Rate Hike Timing

The political stakes are high, too. Weak wage results might reinforce perceptions that Kishida hasn’t done enough to cushion households from the strain of inflation, adding to risks that he may be replaced in a September race for the leadership of the ruling Liberal Democratic Party. 

“Results are important for Kishida whose popularity is already low,” Iwashita said. “That’s why the government has done a lot to call for wage hikes, which should be a supportive factor for the government to declare an exit from deflation.”

Overall monthly cash earnings, the broadest yard stick of paychecks, have risen for 25 consecutive months while real wages, adjusted for inflation, have been falling for 22 straight months. That suggests pay gains do need to grow if they are to help households and boost consumption. 

Still, excluding sample distortions and volatile overtime and bonuses, nominal pay for full-timers has been on a gradual uptrend, suggesting underlying strength. 

In Japan, unions at the biggest companies report results first, setting the tone for smaller ones that will divulge outcomes later. 

“It’s important to realize a wider spread of wage gains with smaller firms also doing enough for pay growth,” Kishida said.

--With assistance from Emi Urabe.

(Updates with comments from prime minister)

©2024 Bloomberg L.P.