Not only the size, but also the breadth of wage hikes is crucial for the virtuous cycle between wages and prices
The annual spring wage negotiations (a.k.a. Shunto) are approaching once again. As the BOJ raised its policy rate in January on the condition of widespread wage increases, the outcome of this year’s Shunto remains crucial in determining any additional rate hikes by the Bank. Moreover, attention this year will be focused not only on the headline wage increase, but also on wage increases at small and medium-sized enterprises as a measure of how broadly wage growth is throughout the economy. This report serves as a concise guide for the upcoming Shunto, consolidating our perspectives into a single document.
Our base case view is that high wage increases achieved in 2024’s Shunto (5.3%) will continue in the next few years. We forecast wage increases (including seniority-based pay rises) of 5.0% for 2025 and 4.7% for 2026. Regarding base pay increases, which are total pay rises excluding seniority-based pay increases, we forecast 3.5% and 3.1% for 2025 and 2026, respectively.
Several factors underpin expectations for continued robust wage growth following last year's increases. Among these factors, we place particular emphasis on the following:
Union’s demands for wage hikes in 2025 were stronger than last year
The Japanese Trade Union Confederation (Rengo) published data on member unions' wage hike demands for the spring 2025 round of negotiations on 6 March. On average, unions demanded a 6.09% increase in wages, including both seniority-based pay and base pay increases, higher than the 5.85% figure in 2024 (Fig. 1 ). A breakdown by size, shows demands by smaller trade unions accelerated noticeably (2025: 6.57%, 2024: 5.94%).
Although it will depend on future negotiations, the demands of labor unions were somewhat stronger than those of last year, raising the risk that agreed wage increases could be higher than Nomura’s outlook (5.0%) and last year’s wage hike (5.1%).
The first round of 2025’s Shunto results will be due on Friday 14 March (Fig. 2 ). But ahead of this release, there will be a concentrated period, when major companies simultaneously respond to union demands, which is scheduled on 11-13 March. Therefore, by 12 March, by compiling each union’s negotiated results, we will get a clearer picture of how large the pay rise in the flash data will be. Rengo will hold its press conference from 4:15pm JST (7:15am GMT) and the press release on its homepage will be around 5pm JST (8am GMT). We also note that we could see news flows by media outlets on the headline pay increases shortly before the press conference starts, as that is the usual case.
According to ESP’s forecast, which collected Japan’s economic forecasts from 36 local participants in February 2025, the market’s consensus for 2025’s Shunto (simple average of all forecasts) is a total pay rise of 4.92%, of which the rise in seniority-based pay was 1.69% and base pay was 3.23% (Fig. 3 ). This is in line with our view (5.0%). However, the market's current view may be higher than this figure, as union’s demands are stronger than last year.
While we get the first round of the Shunto results in mid-March, the headline wage growth figure tends to be revised lower as Rengo updates its reports. This is because more small- and medium-sized companies will be included in the later samples, and the wage growth numbers tend to be dragged down by a higher share of these companies. As a reference, the revisions from the first to the final round of the results were 0.18pp and 0.22pp, in 2024 and 2023, respectively (Fig. 4 ). Nevertheless, the final results do not largely deviate from the first round results, so the headline figures on 14 March remain highly important.
If our forecast of a 5.0% wage hike materializes in the final stage of the negotiations, the corresponding wage increase in the first round on 14 March is estimated to be about 5.2%.
