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

Mizuho argues that Japan's risk of a wage-price spiral is low due to deteriorating terms of trade from high energy costs and yen weakness. They forecast a gradual BOJ rate-hike path, reaching 1.5% by mid-2027.

Key Takeaways

• 1.The risk of a wage-price spiral in Japan is low because worsening terms of trade, driven by high energy prices and a weak yen, exert downward pressure on real wages.
• 2.Real wages grew +1.3% YoY in March 2026, marking four consecutive months of gains, but this was partly supported by government energy subsidies.
• 3.The Bank of Japan is expected to maintain a gradual rate-hike pace of 25bp every six months, targeting a policy rate of 1.5% 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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