By Leika Kihara and Tetsushi Kajimoto

TOKYO, Reuters – Japan’s annual wage negotiations began Tuesday. Policymakers tried to minimize the possibility that rising raw materials prices might be fueling “bad inflation”, where rising wages don’t rise enough to cover the increasing cost of living.

Fumio Kishhida, the Prime Minister, blamed rising global commodity prices for recent price increases. He stressed that it was important to increase wages and incomes in order to ensure solid economic growth.

Kishida said Tuesday to parliament that “it’s desirable create an environment where companies can pass along rising costs and raise salaries, so increasing consumption spurs economic development and inflation.”

Haruhikokuroda, Bank of Japan governor, stressed wage rises in order to counter any inflationary trend.

We remain alert to the possibility that prices could rise before wages start to rise or to how rising raw material costs might affect smaller businesses. He said that while we must be vigilant to these risks and maintain our current easy-monetary policy, he also spoke at the parliament session.

As the main business lobby and the unionists started annual spring wages negotiations, which are expected to end in March, the policymakers made these remarks.

Japan is facing high inflation due to rising input costs, weak yen and depressed political opposition.

According to the premier, it is difficult to define what constitutes “good” and “bad” inflation. He declined to give a date when Japan might achieve that type of inflation.

BOJ’s Kuroda claimed that Japan does not experience an “abnormally low” yen. He was responding to the notion that Japan’s falling currency value was responsible for high living expenses.

The key is wage growth to determine whether or not the central bank can sustainly push inflation up to the 2% target. It also holds the key for Kishida’s promise to incite a positive cycle of wealth distribution and growth.

However, it is not certain if companies will listen to Kishida’s request for higher wages.

Japan’s most powerful business lobby Keidanren resisted Kishidas demands for uniform wage rises of at least 3% from profitable companies.

Masakazu Tokura, chairman of Keidanren said Tuesday that companies should set their wages in line with their situation. The fallout from COVID-19 has made profits uneven across sectors.

Tokura explained that the “K-shaped recovery” in the prolonged pandemic has made it more critical than ever before for companies to adapt their responses according to their specific circumstances.

Japan is not immune from the effects of commodity inflation. With wholesale prices increasing at an unprecedented pace, pushing more companies to increase prices. This has already changed public perceptions that low inflation for decades will continue.

In December core consumer inflation was 0.5%, which is well under the BOJ’s target of 2%. This could be due to cuts in cellphone fees, which offset some the rise from higher electricity bills and increased food prices.