For some context, the fiscal year 2025 preliminary figure was 5.46%. That was then watered down to 5.25% once we got the final confirmation of the exact average wage hike. It is a normal practice for that to happen, so expect more of the same this time around too. As such, this preliminary 5.26% will be much softer even if it is showing that it is higher than the 5.25% final figure from fiscal year 2025.

As a reminder, the average wage hike in 2023 was 3.80%. And in 2024, it was 5.10% before the 5.25% figure in 2025.

Overall, it’s still a strong number relative to what we have seen in the past from Japan. And this makes it three straight fiscal years now that the average wage hike has come above 5%. That in my view and surely to many, is the threshold that needs to hold in order for the BOJ to lay the groundwork to pursue further rate hikes.

So, the central bank has pretty much gotten the green light and confirmation on that. However, policymakers might have just missed their timing window as the Middle East conflict has now thrown a spanner into the works.

The BOJ wants the inflation trend in Japan to be driven by stronger wage pressures. However, rising oil prices now will complicate things amid cost-push inflation creeping into the economy. And that is something that the BOJ is actively trying to avoid.

Adding to that is the US-Iran conflict and higher oil prices will just weigh further on the yen currency and overall economic output, as higher day-to-day costs for businesses and households weigh. That kind of backdrop will also be a challenging one for the central bank to try and hike rates into.

This article was written by Justin Low at investinglive.com.