Reading from the February corporate price index, will there be a pay raise and negative interest rate removal in the spring wage negotiations?

The PPI (Producer Price Index) is an indicator that looks at how the prices change when factories ship goods. It helps to understand the fluctuation of raw material and wholesale prices, and is used as a sign of whether prices may rise or fall in the future. When the PPI rises, it is thought that future consumer prices may also rise, so the central bank uses this to decide on monetary policy.

Long-term interest rates refer to the yield of long-term government bonds issued by the government. These are influenced by inflation expectations, economic growth, and the central bank's interest rate policy.

When PPI rises and inflation is expected, demand for yield on everyone's bonds may increase, and long-term interest rates might also rise.

Deposit interest rates are influenced by the central bank's policy interest rates and short-term interest rates in the market, and refer to the interest earned on money deposited in banks. If the PPI goes up, the central bank may raise interest rates to control inflation, which could also lead to an increase in deposit interest rates. However, when there are negative interest rates, an increase in PPI may also create pressure for the central bank to return interest rates to normal.

In February 2024, the domestic Corporate Goods Price Index (CGPI) was 120.3, up 0.2% from the previous month (0.6% year-on-year)

The export price index was 111.1 on a contract currency basis, up 0.1% from the previous month, and 136.9 on a yen basis, up 1.3% (8.8% year-on-year)

The import price index was 127.7 on a contract currency basis, down 0.2% from the previous month, and 164.4 on a yen basis, up 1.1% (0.2% year-on-year)

The Bank of Japan announced on the 12th that the Corporate Goods Price Index for February 2024 increased by 0.6% compared to the same month of the previous year, reaching 120.3. This means that it has been rising for 36 consecutive months. Although the growth rate has been below 1% for the past 4 months, it has increased significantly from the previous month's 0.2%. This is because the effectiveness of government measures to curb the prices of electricity and gas has somewhat diminished.

Looking at this Corporate Goods Price Index, the prices of 400 out of 515 items have increased, with noticeable price increases in food and transportation equipment in particular. This is because the increase in material costs and logistics expenses is being reflected in product prices. However, electricity, gas, and water have decreased by 21.9%, and the price of wood has also dropped due to poor market conditions.

The Bank of Japan says it will continue to carefully observe the world commodity market, import prices, and how companies determine prices. Although the Corporate Goods Price Index is expected to remain flat for a while, there is also a suggestion that pressure for prices to decline may continue as consumer prices still have a high inflation rate.

Regarding the hot topic of the Bank of Japan's lifting of negative interest rates, the Domestic Corporate Goods Price Index has risen to 120.3 in February, an increase of 0.2% from the previous month and 0.6% from the previous year. This number indicates that the prices companies pay have been gradually increasing. As rising prices have an impact on the overall economy, there is speculation that the Bank of Japan may reconsider its interest rate policy.

Specifically, at the Bank of Japan's meeting in March, there is a possibility that voices calling for the discontinuation of the negative interest rate policy will be raised. Until now, banks have been charged a negative interest rate of -0.1% on the money they deposit with the Bank of Japan, but this may be discontinued and turned into a positive interest rate. If that happens, short-term interest rates may be raised slightly from the current almost zero.

As prices continue to rise and there is a possibility of salary increases in this year's spring labor negotiations, if a majority of committee members support the lifting of negative interest rates, it will be a significant move to raise interest rates for the first time in 17 years. However, if there is a minority in favor, the discussion on interest rates will be carried over to after April.

The Bank of Japan's governor says that they have not yet achieved the continuous attainment of the price target, but the direction of the interest rate policy may be determined depending on the results of the spring labor offensive. The results of the spring labor offensive will be announced on the 18th, so the members of the Bank of Japan will decide on the merits of the interest rate based on that.

Major companies such as Toyota Motor agreed in the annual labor-management negotiations held on Wednesday to fully accept the wage increases sought by the labor union.

It is very important for banks to achieve a sustainable inflation target of 2% through wage increases. Since Ueda took office as the new head in April 2023, the bank has declared its aim for a 2% inflation rate accompanied by wage increases.

According to the Japanese Trade Union Confederation (Rengo), as of March 4th, labor unions have been demanding an average wage increase of 5.85%, which is 1.36 points higher than last year.

Rengo is expected to announce the initial results of the negotiation on Friday, but employers are said to have agreed to even larger wage increases, surpassing the 3.8% standard reported in the initial results for 2023.

Sosuke Takada, a board member, mentioned during a lecture last month that it seemed that the 2% price stability target was being achieved. Another director, Junko Nakagawa, told the audience last week that progress towards the price stability target was solid.

Officials from the Ministry of Finance have said that the time has come to determine whether there is a good cycle between wages and prices, and there is no need to wait until the April meeting.