Japan's 2026 Wage Negotiations as a Key Variable for Central Bank Rate Hikes

The Japanese Trade Union Confederation (RENGO), representing 7 million members, has sent a clear and strong signal: the 2026 wage negotiations will once again focus on substantial pay raises. This is not only an annual routine for the unions but also conceals deeper logic related to the shift in central bank policies.

**Wage Growth Supports Central Bank Policy Space**

U.S. tariff policies continue to challenge the profits of Japanese companies, but this has not prevented consensus between labor and management on wage increases. Recently, Bank of Japan Governor Ueda Kazuo stated that more data is needed to assess the direction of negotiations next year, implying that the central bank is closely monitoring wage trends.

The key point is that steady wage growth can directly boost private consumption recovery, creating favorable conditions for the central bank to raise interest rates. In other words, as long as wages continue to grow, consumption remains resilient, and the central bank dares to raise rates without harming economic recovery.

**Real Wages Remain a Pain Point**

Data presents an interesting contradiction: although nominal wages are expected to increase, the core consumer inflation rate remains above the BOJ’s 2% target, resulting in negative real wage growth. This means that even if unions secure significant pay raises, workers’ actual purchasing power continues to decline.

RENGO’s current goal is to increase wages by 5% or more, consistent with their demands in 2025, marking the most aggressive pay raise request in 34 years. Whether this can be achieved will directly influence the Bank of Japan’s policy outlook for 2026.