'Shuntо̄' Wage Negotiations Could Impact Investors in Japan

Japan’s annual wage negotiations have resulted in the largest pay increase for 30 years, but also led to concerns about the risk of inflationary pressure and stagflation. 

The 2023 ‘Shuntо̄’ – talks which take place every spring – saw employers and unions agree on a 3.8% pay rise, the highest since 1993. Final Shuntо̄ results and actual pay rises across Japan may differ, but the trend of increased earnings is clear, with companies including The Fast Retailing Co, Nintendo and Toyota giving salary raises not seen for years. 

Whilst this is good news for employees facing rising living costs, it may also contribute to sustained inflationary pressure and the risk of stagflation. Japan’s economic recovery is facing challenges as it is highly dependent on external demand, and wage rises, if not transmitted into sustainable economic growth, may intensify stagflationary risks.

This is likely to make Japanese investors restless, as financial assets in Japan have performed poorly during times of stagflation in the past. During these periods, gold has outperformed all other major assets, and gold in yen has already outperformed major assets in Q1 2023. 

Read the full World Gold Council report here.