(Bloomberg) -- Japan’s largest union group announced stronger-than-expected annual wage deals Friday, a result that will fuel already intense speculation that the central bank will next week raise interest rates for the first time since 2007.

Rengo, a federation of unions, said its members have so far secured deals averaging 5.28%, a figure that far outpaces the initial 3.8% tally from a year ago — itself the biggest in 30 years. Many of Rengo’s affiliated groups had already announced agreements to hike wages by 5% or more. 

Base pay deals averaged 3.7% in the first tally of results, compared with 2.33% a year earlier, it added.

The stronger-than-expected result may be enough to convince the BOJ to end the world’s last negative rate on Tuesday instead of waiting until April. The central bank has long pursued a goal of achieving sustainable 2% inflation. A key component of that goal is setting in motion a virtuous cycle in which wage growth feeds into demand-led price gains. 

“This clears the last hurdle for the BOJ and I think it will scrap its negative rate next week and make a shift toward policy normalization,” said Taro Saito, head of economic research at NLI Research Institute. “If they stand pat now, markets will get volatile and the yen is likely to plunge.”

While the yen strengthened after Kyodo News reported that the figure would top 5% ahead of the release, the currency reversed gains amid broad strength in the dollar. Its muted trading was also an indication that market players are yet to be entirely convinced that the BOJ will move on Tuesday.

“The market has largely priced in the strong outcome,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc. in Tokyo.

What Bloomberg Economics Says...

“Rengo’s figures are eye-popping. Although the results are still preliminary, now the odds are high for Japan’s economy to finally have the solid wage growth that has long been a missing piece for the BOJ since it started its experiment of massive monetary easing.”

— Taro Kimura, economist

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The results show that a combination of bumper profits at companies along with a labor shortage, ongoing inflation and government pressure has helped convince boardroom executives across Japan they need to raise pay by more than in past years.

Toyota Motor Corp., Japan’s biggest company by market capitalization, said it agreed to its union’s pay demands in full with record raises, and a slew of unions announced results on Wednesday that exceeded last year’s gains. 

Some executives have also bought into the idea that Japan as a nation has to do more to escape from its decades of deflation.

“To keep the current momentum, we have to keep raising wages and make people feel, “Wow, we can consume,’” said Suntory CEO Takeshi Niinami in an exclusive interview on Bloomberg TV. “The key thing definitely is that we have to finish the deflationary spiral.”

This year’s negotiations have taken on extraordinary importance as Prime Minister Fumio Kishida seeks to confirm the nation has finally escaped deflation after decades of economic erosion caused by stagnating prices. The premier has seen his support ratings slide to fresh lows partly due to frustration from households burdened by a persistent decline in real wages.

“I think we can confirm a positive trend is in place to shift the economy from a cost-cutting model to the next stage,” Kishida said Wednesday evening after the positive news from unions earlier.  

--With assistance from Daisuke Sakai and Masaki Kondo.

(Updates yen move and adds comment)

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