Goldman Sachs: Japan's wage growth needs to accelerate further to achieve the inflation path target of the Central Bank

On March 18, the Goldman Sachs economists stated that Japanese wages need to rise by at least 3% over the next two years to achieve the Central Bank’s sustainable inflation target. Reports from economists like Akira Otani indicate that nominal wages need to rise by around 3%-3.1% in 2025, and by 3.3%-3.4% the following year to align with the inflation path envisioned by the Japanese Central Bank. The report emphasizes the need for a stronger wage growth to establish a virtuous economic cycle of income and price pumps, which is a prerequisite for the Japanese Central Bank to further tighten monetary policy. According to the annual data from Japan’s Ministry of Health, Labour, and Welfare, the nominal wage rise rate in Japan in 2024 was 2.8%. Goldman Sachs economists mentioned that they still expect the Japanese Central Bank to raise interest rates at a pace of approximately twice a year, with the next expected in July. They stated that if wage data significantly deviates from the trend calculated by Goldman Sachs for achieving the stable inflation target set by the Japanese Central Bank, the pace of rate hikes may be faster or slower.