07:15 AM EDT, 08/06/2025 (MT Newswires) -- Wage data for June was released in Japan on Wednesday and there has been limited market impact in currencies or rates from the renewed acceleration in annual growth rates, said MUFG.

The headline cash earnings annual growth rate picked up from 1.0% in May to 2.5% in June and while weaker than what was expected, it was a big enough jump to ensure the Bank of Japan can maintain the view of wage growth adding to the prospect of achieving its price stability goal, noted MUFG.

The pick-up was helped by a summer bonus increase of 3.0% year over year. The base salary for full-time workers stripping out sample changes increased 2.3% year over year and will be seen by the BoJ as justification for maintaining its guidance that the economy is unfolding as expected, which will, as such, require further hikes going forward, wrote the bank in a note to clients.

However, with nationwide inflation rates still elevated, the level of real wage growth remained negative, at -1.3% in June. That fact remains a crucial element of why the cost-of-living crisis continues to undermine support for the government, stated MUFG.

No surprise then that Taro Kono, one of the senior LDP members and a runner in the leadership election last year, which was won by Prime Minister Shigeru Ishiba, on Wednesday called more explicitly for the BoJ to tighten its monetary stance.

Kono stated that the government should have reached an agreement with the BoJ before the upper house elections for the BoJ to hike interest rates in return for the government committing to cutting government spending and making stronger efforts to bring the budget into balance more promptly.

Kono was clear that what is ultimately needed is a stronger yen (JPY) to help bring down inflation. These comments from Kono MUFG believes are signs of the building domestic pressure that the BoJ will come under to become less cautious and take action that will bring inflation down more notably. The chair of the Japan Association of Corporate Executives last week stated on Bloomberg TV that the weak yen was damaging the economy.

The yen remains the top-performing G10 currency in August to date, following the sharp drop in USD/JPY following the payrolls report and while the bank is bullish yen over the medium-term, there remain some short-term risks that are curtailing follow-through yen buying.

The position of PM Ishiba remains uncertain, while the caution of the BoJ at last week's policy meeting leaves investors concerned, added MUFG. Japanese government bond market instability risks are also a factor and a key test comes on Thursday with the 30-year JGB auction.