Profit boost from weak yen helps sustain virtuous cycle

As we had anticipated, the weak yen isn’t providing a big boost to Japan’s export volumes. Instead, its impact is mainly felt via higher yen revenue and costs. With firms having passed on the full increase in import costs to their customers, profit margins have hit record highs. That matters because it has allowed firms to grant the largest pay hikes in decades. And with RENGO this week requesting an even bigger pay hike in next year’s spring wage negotiations than it did in this year’s talks, the virtuous cycle between prices and wages that the Bank of Japan has been looking for is in full swing.