Goldman Sees Highest Base Pay Hike Since 1993 in Japan Talks

Yoshiaki Nohara, Bloomberg News

Visitors offer prayers on the first business day of the year at the Kanda Myojin shrine on Jan. 4. Photographer: Noriko Hayashi/Bloomberg , Bloomberg

(Bloomberg) -- Goldman Sachs Group Inc. raised its forecasts for Japan’s upcoming spring wage negotiations, expecting the highest base pay hike in three decades as inflation continues to surprise on the upside.

The brokerage now sees a base wage increase of 1.2% in the annual negotiations between labor unions and companies, up from its previous forecast of 0.9%. When combined with scheduled, seniority-based raises, Goldman expects an increase of 2.8% as a result of the wage negotiations, up from its former view of 2.5%.

While the new forecast would bring wage gains closer to the key 3% level flagged by the Bank of Japan as necessary to achieve its inflation goal, the brokerage didn’t expect the new numbers to have a major impact on monetary policy.

Higher than expected inflation in recent months and a more proactive stance on pay from companies were behind the revision, Goldman said in a report Thursday. The first round of key results from the spring wage talks typically come out in March.

The overall picture for wages was a little less rosy, according to Goldman. The brokerage expects a continued slowdown in overtime pay and bonuses for the fiscal year starting in April, due to weaker economic and corporate profit growth.

Overall wage increases for the next fiscal year will likely be 2.1%, Goldman economists Yuriko Tanaka, Naohiko Baba and Tomohiro Ota wrote.

“We therefore think the BOJ is likely to maintain the monetary policy in a bid to encourage companies to increase wages,” the economists wrote. Still, they also said they are skeptical of the sustainability of the BOJ’s yield curve control program and expect more adjustments, like targeting a shorter-maturity yield in the second quarter.