Wages pick-up to drive Japan’s inflation and interest rates higher

Japanese wage inflation has so far remained subdued despite the downward trend in unemploymentn since 2003. This probably reflects consumer uncertainty over the outlook for the economy, with employees willing to sacrifice higher pay for greater job security. But looking ahead, the survey evidence suggests that the labour market is likely to strengthen further. This suggests that consumers will become less cautious over the next few months and that wage inflation will accelerate, putting upward pressure on final prices and interest rates.