What’s going on?

Japan’s biggest union group just won the biggest wage deal, which could push up the country’s prices.

What does this mean?

• Japan’s economy has been held back by slowed inflation for decades, despite the government and central bank’s best efforts to fight against stagnant prices.
• Finally, the economy might move in the right direction, with the unions having secured the biggest pay hike in over 30 years (said by Rengo – an umbrella group of unions), which should see the average wage pick up by 5.28%.
  • Paychecks influence how much is spent, where retailers set their prices, and the amount of money circulating in the economy.
• We’ll however see if that’s enough to reverse the decade-long trend.

Why should I care?

The bigger picture: What’s next for BoJ

• Before this, the BoJ has already done anything possible to stir the economy: flooding the economy with cash, sticking to sub-zero deposit rates, and even adjusting long-term interest rates (usually a saved-up move).
• Now that wages might pull inflation and the economy up, some analysts believe the central bank might be able to pause its more aggressive policies soon, but that would be the first of many decisions the BoJ would need to make, particularly where to pitch interest rates and how to manage its colossal bond portfolio.

Zooming out: Bright future ahead

• Traders are already adjusting their portfolios, which includes buying more Japanese stocks (benefiting in a stronger economy), and the yen (doing well under higher interest rates).
• The “widowmaker” trade is also, which means traders are betting against Japanese government bonds (in the bet that yields will rise) – a strategy that has historically bitten back by landing investors with major losses.

Content source: Finimize (2024) Business As Unusual. Available at: https://finimize.com/content/business-as-unusual [Accessed on Mar 16, 2024]