BOJ to hike rates gradually given wage outlook, Goldman says

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is likely to keep hiking interest rates gradually as wages are seen rising at a pace that will keep inflation stably around its 2% target, according to recent estimates made by Goldman Sachs (GS).

Based on data so far, Japan's wage growth will likely accelerate to 3.0% this year from 2.8% in 2024, Goldman Sachs (GS) said in a report released on Monday.

The estimate is based on projections that full-time workers' regular pay - crucial in gauging overall wage growth - will rise 2.9% in 2025, faster than a 2.6% gain in 2024, the report said.

Such a pace is consistent with levels that will keep inflation sustainably around the BOJ's 2% target, it said.

Akira Otani, a former top BOJ economist who is currently managing director at Goldman Sachs Japan, expects inflation to converge around the BOJ's 2% target if overall wages rise by around 3.0-3.1% this year, and roughly 3.3-3.4% in 2026.

"If the pace of wage gains moves roughly in line with our findings, the BOJ is highly likely to keep raising interest rates gradually," Otani said.

Wage hikes exceeding the range could speed up the pace and timing of BOJ rate hikes, while slower-than-expected wage gains could lead to a delay in rate hikes, he said.

The BOJ is widely expected to keep interest rates steady at 0.5% at its two-day policy meeting concluding on Wednesday.

Goldman Sachs (GS) expects the BOJ to raise rates to 0.75% in July, and keep hiking at a pace of roughly twice a year.

(Reporting by Leika Kihara; Editing by Kim Coghill)