Japan's Wage Growth May Prompt Tightening, But Iran Conflict Adds Uncertainty

Japan's wage growth is expected to strengthen, potentially leading the Bank of Japan to resume tightening policies soon. According to Jin10, Capital Economics suggests that the ongoing conflict in Iran introduces uncertainty, possibly delaying interest rate hikes further. The upcoming spring wage negotiations are likely to result in significant pay raises, supported by preliminary labor cash income data showing wage growth in January. However, Abhijit Surya, a senior economist at Capital Economics, warns that the Iran conflict casts a shadow over the global economy, raising concerns that Japan's economy might be affected by the turmoil. Despite the surge in energy prices likely driving inflation in Japan—unless the government intervenes significantly—Capital Economics maintains its base scenario of a rate hike in June, while acknowledging substantial risks to this outlook.