BOJ's Ueda projects tight labor market barring major shock

By Howard Schneider and Leika Kihara

JACKSON HOLE, Wyoming (Reuters) -Bank of Japan Governor Kazuo Ueda said on Saturday the country’s labor market is expected to remain tight barring a major negative demand shock, and expects upward pressure on wages.

Despite a dwindling working-age population, wage growth remained stagnant for decades in Japan due to "entrenched deflationary expectations" that discouraged companies from raising prices and pay, Ueda said.

Now, wages are rising and labor shortages have become "one of our most pressing economic issues," as global inflation caused by the COVID-19 pandemic served as an external shock that broke Japan out of a deflationary equilibrium, he said.

"Notably, wage growth is spreading from large enterprises to small and medium enterprises," Ueda said in a panel held during the Federal Reserve’s annual conference in Jackson Hole, Wyoming.

"Barring a major negative demand shock, the labor market is expected to remain tight and continue to exert upward pressure on wages," he said in the panel that addressed labor market challenges developing in major economies.