Japan's "Shunto" Preview: Bank of Japan Rate Hike Imminent, Boosting the Yen

TradingKey - The Shunto—short for the Spring Wage Offensive—is Japan’s annual nationwide labour-management bargaining event held every spring. Typically, Shunto unfolds in three stages: In the first round, employers discuss potential wage increases; in the second, workers at various companies voice their demands; and in the third, Japanese trade unions negotiate with employers.

On 6 March 2025, the Japanese Trade Union Confederation (JTUC-RENGO) released its wage hike demands for this year’s Shunto: a weighted average total wage increase of 6.1% and a base pay rise of 4.5%, both exceeding last year’s figures of 5.9% and 4.3%, respectively (Figure 1). Additionally, the union set a target of over 6% growth for small and medium-sized enterprise (SME) unions.

Figure 1: Japan wage growth demand (%)

Source: Refinitiv, Tradingkey.com

Despite Japan’s economy facing weak domestic demand and sluggish consumption in the first half of 2024, a clear recovery emerged in the second half. According to IMF forecasts, Japan’s real GDP growth for 2025 is projected to reach 1.1%—a significant improvement over 2024’s modest 0.1% (Figure 2). With improving economic expectations and rising corporate profits, major players in Japan’s manufacturing and financial sectors have signalled their willingness to grant wage increases ranging from 5.6% to 10%. As a result, we believe it is highly likely that companies will meet the unions’ wage demands.

Figure 2: Japan's real GDP growth (%)

Source: Refinitiv, Tradingkey.com

On the inflation front, headline CPI year-on-year rose steadily from a low of 2.3% in October last year to 4% in January this year, while core CPI (excluding fresh food) climbed to 3.2% (Figure 3). Should the 2025 Shunto succeed, it could further strengthen the virtuous cycle between wages and prices in Japan. Against this backdrop of gradual economic recovery, the Bank of Japan (BoJ) is expected to raise interest rates 2–3 times this year. This, in turn, is likely to drive the yen’s exchange rate higher against the US dollar (Figure 4).

Figure 3: Japan CPI (%)

Source: Refinitiv, Tradingkey.com

Figure 4: USD/JPY

Source: Refinitiv, Tradingkey.com