The Japan Automobile Union warns that if the central bank raises interest rates this week and the yen rises sharply, it will jeopardize next year's “Chunto” salary increase

The Zhitong Finance App learned that the head of the Japan Automobile Industry Union said he is worried that if the central bank raises the benchmark interest rate on Friday as the market generally expects, this move may affect the company's ability to raise wages in the next fiscal year. Akihiro Kaneko, chairman of the Japan Federation of Automobile Trade Unions, said in an interview on Tuesday: “If the Bank of Japan's decision causes the yen to rise sharply after Friday, it may affect business confidence.” He added: “Drastic exchange rate fluctuations will make it more difficult for exporters to implement wage increases because profits are expected to disappear.” At the same time, he pointed out that if changes are moderate, enterprises should be able to adapt.

Kaneko made this statement at a time when the Bank of Japan's Monetary Policy Committee is preparing to meet, and the market is closely monitoring wage developments in the automobile industry. The Bank of Japan is expected to raise the policy interest rate to 0.75% at the end of Friday's meeting, the highest level in 30 years.

Bank of Japan Governor Kazuo Ueda said after the October meeting that he is watching the “initial momentum” of next year's salary negotiations, and industries affected by tariffs are the focus of special attention. A report released by the Bank of Japan on Monday showed that further progress has been made on the payroll front, but Kaneko said the authorities should wait for more convincing signs.

“If the Bank of Japan is looking for 'initial moment', that could mean waiting until February or March next year,” Kaneko said. The company may even change its mind after a month depending on the situation at the time.” In the automotive industry, major companies usually announce their remuneration agreements in mid-March after a request from a trade union in mid-February.

After experiencing the generally anticipated rate hikes this week, most economists expect the Bank of Japan to tighten policy at a pace of about once every six months. The median forecast shows an end interest rate of 1.25% for the current cycle. Kaneko said that if the inflation rate remains around 2% and exchange rate fluctuations are moderate, a gradual increase to around 1% will be in line with sustainable growth.

Kaneko's trade union last week announced a draft policy for wage negotiations that will culminate in March, stating that it will seek a minimum monthly basic wage increase of 12,000 yen ($77.50). By using this figure as a minimum standard rather than a reference point, the union's stance is slightly stronger than last year. Last year, the union secured 9,520 yen or 3.58% pay increase, the highest level since 1996.

Like other trade unions, Kaneko's organization will also focus on narrowing the wage gap between large and small companies in the upcoming salary negotiations. According to trade union statistics released in September, in the last round of negotiations, the average wage of employees in companies with fewer than 300 employees increased by 8,688 yen, far lower than the 12,831 yen won by large companies with 3,000 or more employees.

The new wage targets suggest that workers intend to keep up the pressure on their employers despite increasing negative factors, including higher US tariffs. According to the Bank of Japan's corporate commodity price index report, Japanese automakers cut the price of cars sold in North America by nearly 20% earlier this year to maintain competitiveness due to tariffs driving up costs. According to the company's financial report, the total impact of tariffs on the seven major automobile manufacturers is expected to reach 2.5 trillion yen in the fiscal year ending March next year.

Kaneko said the impact of higher US tariffs may be partially offset by stronger domestic demand. Prime Minister Takaichi Sanae plans to abolish the gasoline tax, which will help support domestic automobile demand and may stabilize the profit base of automobile manufacturers.

Kaneko generally supports Takaichi Sanae's growth strategy. Last month, the government launched the largest economic package since pandemic restrictions were eased, including measures to promote wage growth of about 980 billion yen (mainly for small and medium-sized enterprises) and various measures to stimulate growth.

However, Kaneko, who once led the Toyota Motor Corporation trade union, warned that excluding large companies from preferential tax policies for salaried companies prior to key salary negotiations could affect business sentiment. He also urged the government to step up measures to increase productivity, including supporting digital investments, to help maintain the country's global competitiveness.

As wage negotiations are about to officially begin at the beginning of the new year, the union chairman's words have become more powerful. “This is the fourth year since we first stepped up our action, and there is a risk that it may become routine rather than targeted,” Kaneko said. In this sense, we hope to build on the momentum by emphasizing the need for salary increases both internally and externally.”