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BOJ Chief Sees Tight Labor Market, Upward Wage Pressure Ahead
23 Aug
Summary
- Japan's labor market expected to remain tight
- Wages rising, breaking decades of stagnation
- Global inflation disrupted Japan's deflationary equilibrium
As of August 23rd, 2025, Bank of Japan Governor Kazuo Ueda has reported that Japan's labor market is expected to remain tight, barring any major negative demand shock. This comes despite the country's dwindling working-age population, which had previously contributed to decades of stagnant wage growth due to "entrenched deflationary expectations" that discouraged companies from raising prices and pay.
However, the global inflation caused by the COVID-19 pandemic has served as an external shock that has broken Japan out of this deflationary equilibrium. Ueda noted that wages are now rising, and labor shortages have become "one of our most pressing economic issues." Notably, this wage growth is spreading from large enterprises to small and medium enterprises.
Looking ahead, Ueda expects the tight labor market to continue exerting upward pressure on wages in Japan, unless a significant negative demand shock occurs. This marks a significant shift from the country's previous economic stagnation, as it grapples with the challenges and opportunities presented by a tighter labor market.
