Capital Economics: Wage growth supports Bank of Japan rate hikes, but Iran conflict remains the biggest uncertainty

Golden Ten Data reported on March 9 that Capital Economics stated there is ample reason to believe that wage growth in Japan will strengthen, prompting the Bank of Japan to soon resume tightening policies. However, uncertainties brought about by the Iran conflict may cause the Bank of Japan to delay rate hikes for a longer period. The spring wage negotiations are likely to once again result in strong pay increases, and earlier preliminary labor cash earnings data showed that wages grew in January. However, Capital Economics Senior Economist Abhijit Surya noted that the Iran conflict has cast a shadow of uncertainty over the global economy, and the Bank of Japan may be concerned that the Japanese economy could be drawn into the conflict. Although surging energy prices are likely to bring inflation to Japan—unless the government intervenes strongly—Capital Economics still maintains its baseline forecast of a rate hike in June, but also points out that there are significant risks to this view.