* Bank of Japan warns against expanding wage increases at small and medium-sized enterprises
* Survey findings could provide a case for a short-term rate hike
* Bank of Japan to hold regional branch managers’ meeting on Monday
* The next board meeting will be held on July 30-31 to provide quarterly forecasts.
TOKYO (Reuters) – The Bank of Japan plans to highlight the widespread spread of wage increases among companies, including small and medium-sized ones, in a report due to be released later this month, sources said, providing a justification for a short-term interest rate hike.
The survey results, based on questionnaire surveys and interviews conducted by the Bank of Japan’s branches nationwide, will be published in an appendix to the Bank’s quarterly report analyzing Japan’s regional economies.
Both the report and annexes are expected to highlight moves to raise wages at small and medium-sized businesses, a sign of stronger wage growth, a prerequisite for raising interest rates, three people familiar with the matter said.
The results will be one of the factors the BOJ will consider at its next policy meeting on July 30 and 31, when it is due to release new quarterly growth and inflation forecasts.
The BOJ’s regional reports are due to be released on Monday when branch managers hold a quarterly meeting in Tokyo, with an appendix expected to be released at a later date, the people said.
The Bank of Japan ended eight years of negative interest rates in March, believing rising wages were likely to keep inflation sustainably near its 2% target. Core consumer prices rose 2.5% in May from a year earlier, above the bank’s target for more than two years.
Bank of Japan Governor Kazuo Ueda has hinted at the possibility of further rate hikes if wage gains pick up, encouraging companies to raise prices for services and helping underlying inflation move closer to 2%.
Many market participants expect the Bank of Japan to raise interest rates from their current near-zero levels sometime this year, but there is disagreement over whether the increase will happen this month or later.
Companies are offering an average wage increase of 5.10 percent this year, the biggest increase in the past 30 years, according to a survey released Wednesday by Japan’s largest labor union federation.
But the wage increase for small and medium-sized companies was only 4.45%, lower than the 5.19% offered by larger companies. It is unclear whether much smaller companies not surveyed by the federation will be able to get a pay raise.
Staff at the Bank of Japan’s branch network regularly meet with local business executives, helping the central bank understand whether wage increases are spreading among smaller regional firms.
About 70% of Japan’s workers are employed by small and medium-sized enterprises, and their wage trends will be key to determining whether inflation can durably reach the Bank of Japan’s 2% target.
(Reporting by Leika Kihara and Jacqueline Wong Editing by Leika Kihara and Jacqueline Wong)
