“Consumer prices aren’t going back to constantly falling below 2%,” Haruhiko Kuroda said Friday, speaking to reporters for a final time as Bank of Japan governor.

On Monday, Kazuo Ueda, Kuroda’s successor, will hold an inaugural press conference.

Kuroda spoke on a day when labor ministry data showed real wages for Japanese workers fell an 11th consecutive month. February’s 2.6% YoY decline was among the larger drops seen during the streak.

The latest update on inflation, released late last month, showed CPI ex-fresh food rose 3.1% in February. That was down sharply, and marked the first deceleration in the 12-month pace since January of 2022, but the “slowdown” was something of a red herring. It was, in part anyway, the product of energy subsidies.

Excluding fresh food and energy, inflation remains at multi-decade highs in Japan, and price growth would’ve been 4.4% in February were it not for government measures. Apparently, inflation is broadening out, impacting a larger and larger number of items. Some of the price increases are truly dramatic.

The above speaks to a vexing dynamic which Ueda now inherits. Part and parcel of the BoJ’s quest to engineer sustainable 2% inflation is an effort to get regular pay growth up to 3%. To employ familiar language, the BoJ views that as something akin to a religious imperative.

In spring negotiations, labor unions managed to secure a 3.8% wage increase, the largest in three decades, and nearly double last year’s hike. The figure for base wages, though, was just 2.33%. If you split the difference, you end up with a figure that’s pretty close to Kuroda’s 3% wage growth “target.”

Prime Minister Fumio Kishida is likewise bent on engineering higher pay growth, which is a pillar of his so-called “New Capitalism” platform. “Wage increases are the most important issue,” he told a gathering of government officials, labor leaders and executives last month.

Large Japanese firms announced a string of pay increases prior to the annual union talks. As I put it in January, the “permafrost” might finally be thawing in Japan. In December, nominal cash earnings rose 4.8% on a YoY basis, the most since 1997. They posted a 14th monthly gain in February, according to Friday’s data.

The issue (in case it isn’t obvious) is the chicken-egg dilemma: “Transitory” or not, Japan now has some inflation. Not a lot by comparison to other developed markets where price growth soared in 2021 and 2022, but enough to overwhelm wage growth. Negative real wage growth isn’t conducive to healthy consumption. Although YoY household spending rose for the first time since October in February, the increase fell short of consensus and spending dropped from the prior month.

So, wage growth is a prerequisite for healthy inflation, but if inflation is too “healthy,” it’ll overwhelm that wage growth, to the detriment of spending. There are, obviously, myriad other considerations in Japan’s macro calculus. Last year’s inflationary impulse was aided and abetted by an existential plunge for the yen set against soaring commodities prices, a rather perilous combination. Demographics are still a factor looking ahead. And analysts generally expect real wage growth to flip positive later this year.

For now, though, the situation is still touch and go, and on several fronts as Ueda takes the BoJ reins. It’s likely, in my judgment, that the bank will at least try to dismantle some parts of Kuroda’s stimulus regime this year and next. That could turn into a bad Hollywood bomb cliché: “Which wire do I cut?” “Red. No! Wait! Blue.”