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Japan’s chief cabinet secretary, Yoshimasa Hayashi, emphasized the importance of broad-based wage hikes among smaller firms in order to achieve sustained wage gains and prevent rising living costs from hurting consumption. This statement came ahead of the Bank of Japan’s upcoming policy meeting where interest rates could potentially be raised from near zero levels. Hayashi highlighted the need for a positive cycle where firms can pass on higher costs through price hikes to continue raising pay.

The government may compile a fresh fiscal stimulus package later in the year to support households if inflation rises further, depending on economic conditions. While the Bank of Japan has recently shifted away from radical stimulus measures and exited negative interest rates, there is speculation of a potential rate hike at the upcoming policy meeting if evidence shows that wage hikes are broadening and sustaining inflation around the 2% target.

Hayashi also touched on the recent decline of the yen against the dollar, stating the importance of currency rates reflecting fundamentals. He mentioned that recent forex levels may have prompted suspected interventions by Tokyo to support the yen. Hayashi saw no immediate need to revise the joint pact between the government and BOJ on the inflation target, despite criticisms that it may be outdated given Japan’s prolonged inflation above the 2% target.

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