Japanese companies signal willingness to raise wages again next year even as many prepare for weaker profits caused by higher U.S. tariffs, creating conditions that strengthen the case for a Bank of Japan rate increase. The latest central bank report, compiled from branch data as of December 3, shows that most regional offices expect firms to lift pay in fiscal 2026 at roughly the same pace as this year, while only a small minority foresee either stronger or softer wage growth.This matters for markets because wage behavior is central to Governor Kazuo Ueda’s assessment of whether Japan is moving toward a sustainable inflation cycle that warrants a higher policy rate. Investors have treated the findings as validation that a move from 0.5 percent to 0.75 percent is now the Bank of Japan’s base scenario, supported by Monday’s separate sentiment survey showing firmer business conditions.The willingness to keep raising pay despite tariff pressure indicates that corporate Japan remains constrained by tight labor supply, and that firms view wage growth as essential to retaining workers rather than a discretionary cost. This reinforces the narrative that inflation is settling into a domestic, wage-supported pattern instead of depending on currency weakness or imported costs.For the yen, the policy implications are clear. A credible tightening path reduces the rate gap with the United States and limits downside pressure on the currency, which has been sensitive to any signs that the Bank of Japan is ready to normalize policy in measured steps. Traders have already begun positioning for a firmer yen on the view that wage momentum reduces the probability of policy hesitation later in the fiscal year.The equity reaction has been more nuanced. A higher policy rate raises funding costs for companies already absorbing tariff effects, but investors are also reading the wage outlook as evidence of durable domestic demand. That combination has kept market moves contained as investors wait for the Friday decision and the accompanying communication that will signal how quickly the Bank of Japan thinks conditions are shifting. The central bank’s ability to balance wage-driven inflation against trade-related profit pressure will be key to how Japanese assets trade into year-end.Looking ahead, investors will focus on whether early indicators from corporate surveys align with next spring’s wage negotiations, since those talks shape the national pay trajectory. The base case is that stable wage growth allows the Bank of Japan to lift rates gradually without disrupting demand. The risk scenario is that tariffs squeeze profits more than expected, reducing wage capacity and challenging the inflation path. The policy signal delivered this week will determine which of these narratives markets choose to price first.