By Megumi Fujikawa

TOKYO--Japanese companies are again offering workers the biggest pay increase in three decades, the nation's largest labor union group said Friday, signaling wage growth that gives the Bank of Japan a fresh reason to keep raising interest rates.

Preliminary data from the Japanese Trade Union Confederation, known as Rengo, showed that 760 member unions secured wage increases of 5.46% on average this year. That is higher than last year's 5.10% increase and the biggest rise since 1991.

Although Japan's spring wage negotiations, known as shunto, mostly cover only relatively large companies, the Rengo results are closely watched by policymakers and economists as they set the tone for discussions among smaller companies without labor unions that employ the bulk of the country's workforce.

"Both big and small companies are likely seeing the need for wage increases due to various factors including labor shortages and Japan's low income level relative to global standards," said Tomoko Yoshino, president of the trade union group, which represents roughly 7 million members.

Another year of strong results will likely fuel expectations that an additional BOJ rate hike is coming in the near future, though most expect the central bank to stand pat next week after having raised the policy rate to 0.5% in late January.

Policymakers are hoping to see more widespread income growth that will boost household spending and feed into Japan's economic recovery. Wage increases have yet to catch up with the pace of price rises, limiting the rebound in consumption. Inflation-adjusted wage growth has remained weak, falling back in January after two months of slight gains.

This week's pay negotiation outcomes suggest that wage growth could be turning a corner.

Companies with fewer than 300 union members promised to give a 5.09% pay increase to workers this year on average, bigger than the 4.45% seen last year, according to Rengo. That marks the first time since 1992 that the increase has exceeded 5%.

The labor organization has set a higher goal for smaller companies to fill the wage gap with large companies. Major firms including auto giant Toyota Motor have also promised big salary increases this year.

In order to fill that gap, it is important to create an environment where small companies can pass on costs more by raising prices of product and services, Rengo president Yoshino said.

In another key sign, wages for part-time workers are also set to rise further.

UA Zensen, a labor union covering sectors including restaurants, retailers and pharmaceuticals, said Thursday that companies plan to give part-timers a record 6.53% raise this year, exceeding that of full-time employees for the ninth consecutive year.

"The next point of focus for the BOJ's decision on rate hikes will be whether wage hikes spread to" small- and medium-sized companies, Nomura Securities economists Yuki Kodera and Kyohei Morita said in a research report. "In that sense, we think the report presented at the BOJ branch manager meeting in April will be key."

The central bank's branch managers are scheduled to gather on April 7.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

March 14, 2025 04:45 ET (08:45 GMT)

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