Capital Economics: Slower Japan Wage Growth Unlikely to Stop Bank of Japan Rate Hikes

A senior Asia-Pacific economist at Capital Economics said Japan’s slower wage growth in May was unlikely to prevent the Bank of Japan from raising interest rates further. According to Jin10, Abhijit Surya, a senior Asia-Pacific economist at Capital Economics, cited preliminary data showing the growth rate of Japan’s labor cash earnings slowed to 3.2% in May from 3.6% in April. Surya said that despite the recent slowdown, multiple indicators of base wage growth remained well above the 2025 average and were still high compared with historical levels. He added that the data released that day was unlikely to change the Bank of Japan’s underlying assessment that the labor market remained tight. Capital Economics maintained its view that the Bank of Japan was expected to raise interest rates to 2% by the end of 2027.