On Thursday, a Japanese media report caused a sharp drop in the Bank of Japan's interest rate hike bet this month. However, Japan's key data unexpectedly hit the charts on Friday, once again opening the door for the Bank of Japan to raise interest rates this month.

Bloomberg reported on Friday (December 6) that the basic salary of formal employees in Japan has reached a historic high, further indicating that the Japanese economy is moving towards a positive cycle, which will support market speculation about the Bank of Japan's recent interest rate hikes.

(Screenshot source: Bloomberg)

The Japanese Ministry of Health, Labour and Welfare announced on Friday that the basic salary of full-time employees in October increased by 2.8% compared to the same period last year, the largest increase in comparable data since 1994. Actual cash income remains unchanged, avoiding a decline for the first time in three months, as economists had previously expected the data to continue to decline.

(Screenshot source: Bloomberg)

In October, nominal wage growth for all workers accelerated from 2.5% the previous month to 2.6%, in line with expectations. A more stable wage trend indicator shows a 2.8% increase in wages for full-time workers, which avoids sampling issues and excludes bonuses and overtime pay.

Market participants are closely monitoring wage trends and trying to predict the timing of the Bank of Japan's next interest rate hike. The trend of wages is a key determining factor in achieving a positive economic growth cycle. After the results were released, the US dollar/Japanese yen exchange rate remained largely unchanged.

A report from Jiji Press on Wednesday stated that an increasing number of people within the Bank of Japan believe that premature interest rate hikes should be avoided unless there is a significant risk of consumer price increases due to factors such as the depreciation of the yen.

Affected by this news, overnight index swap trading on Thursday showed that the possibility of the Bank of Japan raising interest rates at its meeting on December 18-19 has dropped to only 40%, a significant decrease from 66% on November 29.

Kazuo Ueda, governor of the Bank of Japan, reiterated in an interview with the Nihon Keizai Shimbun last weekend that if the economic performance meets expectations, the authorities will raise interest rates. He further stated that as economic data remains on track, the time for interest rate hikes is "coming soon".

Economists and market participants still have differences on whether the Bank of Japan will raise interest rates in December or January next year. The Bank of Japan plans to release its next policy decision on December 19th.

For the Bank of Japan, the less encouraging news is that household spending continues to decline from last year's levels, dropping by 1.3% in October. Unstable real wage growth will suppress consumption, which may limit Japan's economic recovery.

In an interview with the Nihon Keizai Shimbun, he also said that he hoped to observe the momentum of wage negotiations next spring. The salary negotiations began with an optimistic tone, and the union set ambitious goals similar to this year's.

Rengo, Japan's largest trade union federation, continues to push for at least a 5% salary increase across all industries, with even higher targets for small companies, while the metalworkers' union is demanding a monthly salary increase of 12000 yen (approximately $79.82), a historic high.