Revised data show that regular earnings expanded at the fastest pace in two decades at the start of this year, underlining that the tight labour market is finally generating stronger cost pressures. Still, we estimate that the jobless rate would have to fall by another percentage point for wage growth to reach the level consistent with reaching the Bank of Japan’s 2% inflation target. This would probably take at least another three years. And with the sales tax hike scheduled for next October set to weaken domestic demand and price pressures, policy tightening is still a distant prospect.
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