Adding fuel to inflation! Japanese Chief Cabinet Secretary calls for comprehensive wage increases

According to the financial news app Zhitong Finance, Japan's Chief Cabinet Secretary Hiroshi Hiyama stated that it is crucial to expand the wage increase for small and medium-sized enterprises, emphasizing the Japanese government's commitment to achieving sustained wage growth. This has been a key policy focus of Japanese Prime Minister Fumio Kishida, aimed at preventing rising living costs from harming consumption and undermining the fragile economic recovery. Hiyama's remarks were made before the Bank of Japan's policy meeting scheduled for July 30th to 31st, where the Bank of Japan's board may discuss the possibility of conditionally raising interest rates from the current near-zero level. Hiyama added that achieving a "virtuous" cycle is crucial for Japan, where businesses can pass on higher costs through price increases to earn sufficient income to continue raising wages. "We expect the Bank of Japan to decide on specific monetary policies based on the economic situation and close dialogue with the market," Hiyama said. When asked about market expectations for a rate hike by the Bank of Japan this month, he stated, "It is important to spread the virtuous cycle to more small businesses." Hiyama further mentioned that the Japanese government may introduce a new fiscal stimulus package later this year to mitigate the impact of further inflation on households, with the scale of spending depending on the economic conditions in the coming months. To move away from a decade-long aggressive stimulus plan, the Bank of Japan lifted negative interest rates and bond yield controls in March. Market expectations for a rate hike by the Bank of Japan this month are increasing. Bank of Japan Governor Haruhiko Kuroda has stated that if there is sufficient evidence that wage increases will expand and inflation will remain around the 2% target level, the Bank of Japan will be prepared to raise rates. While large companies have proposed significant wage increases in this year's annual wage negotiations, it is unclear whether small companies can keep up. Regarding the recent depreciation of the yen and its impact on the economy, Hiyama stated that yen exchange rate fluctuations reflecting fundamentals are desirable, but he declined to comment on whether recent exchange rate levels deviate from fundamentals. Due to the significant interest rate differential between the United States and Japan, the yen has fallen by over 10% against the dollar this year, hovering around its lowest level in 38 years. The Japanese government is suspected of intervening in the market this month to support the yen exchange rate, which is currently hovering around 157.50, reaching a six-week high of 155.375 last week after suspected intervention. Hiyama expressed his belief that there is no immediate need to amend the joint statement issued by the Japanese government and the Bank of Japan in 2013, which pledged to achieve the 2% inflation target by the Bank of Japan "as early as possible." This joint statement formed the basis for former Bank of Japan Governor Haruhiko Kuroda's implementation of aggressive monetary stimulus policies and the rationale for maintaining ultra-low interest rates in Japan. Critics argue that the Bank of Japan's focus on overcoming deflation is outdated, given that Japan's inflation rate has exceeded the Bank of Japan's 2% target for two consecutive years