Bank of Japan's Kuroda: Something major is changing in the Japanese labor market

There's something changing in the Japanese economy, according to the country's top central banker.

Bank of Japan Governor Haruhiko Kuroda explained that he is seeing shifts in the country's labor market, and that could augur good things for the Japanese economy.

In fact, he predicted that wages and prices would begin to accelerate.

"A projected growth rate of 1.5 percent is not great, but in Japan it is well above medium-term potential growth rate, meaning that the output gap continues to shrink and becoming positive and the labor market continues to tighten so that wages and prices would eventually rise to achieve the 2 percent inflation target around fiscal 2018," Kuroda said.

As for specifics within the labor market, the central banker said he expects the annual spring wages negotiations to result in a base pay increase similar to last year's. And while that may not sound like much, the deal-making between businesses and labor tends to "forecast past the 12 month inflation rate, to settle the wage increase or pay rise," Kuroda explained.

"And in the last 12 months, as I said, inflation rate was down, and basically in negative territory. And yet, they agreed to base pay increase, almost comparable to last year's pay rise," he said. "That means that business and labor have become, to take into account, future inflation rate, in negotiating base pay increase, probably for the first time in the last several decades."

Additionally, small and medium sized enterprises are facing "really tight labor market conditions," and part-time workers have seen their pay rising "significantly higher" than regular workers in large companies, according to Kuroda.

"So I think if we continue our fiscal and monetary policy in coming years, if labor market continues to tighten ... if this situation continues, eventually, tight labor market conditions would force wages to rise significantly," Kuroda added.

Source: Bloomberg

Jr Trader Alexander Kumanov

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