Assessing Wage-Price Spiral Risk Through Real Wages and Terms of Trade

Mizuho argues that Japan is unlikely to face an inflationary wage-price spiral because worsening terms of trade from high energy costs and a weak yen will suppress real wage growth. They expect the BOJ to maintain a steady tightening pace, reaching a 1% policy rate in June 2026.

Key Takeaways

• 1.Japan is unlikely to experience an inflationary wage-price spiral despite solid base salary growth of +3.2% YoY.
• 2.Deteriorating terms of trade, driven by high energy prices and a weak yen, exert downward pressure on real wages, offsetting the risk of overheating.
• 3.The Bank of Japan is expected to raise the policy rate to 1.0% in June 2026, with further hikes to 1.50% by June 2027.

Table of Contents

• Assessing wage-price spiral risk through lens of real wages and terms of trade
• Relationship between real wages and worsening terms of trade
• When will high energy costs spill over into wages and prices?
• Jiji Press report on BOJ and risk of falling behind the curve
• Important Disclosure Information
• Analyst Certification
• Disclaimer

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