Big things are happening in Japan. The ground’s shifting. And not because of any earthquakes. (Sorry.)

On Wednesday, speculation continued to swirl around an imminent Bank of Japan rate hike after Toyota said it acquiesced to union demands for higher pay for a fourth consecutive year.

The company’s a linchpin of Japan’s annual wage dialogue, which winds up this week just days ahead of the BoJ’s March policy gathering. Sustainable wage growth has long been a prerequisite for policy normalization and some believe the threshold’s met.

Although Toyota doesn’t disclose percentage figures for salary hikes, the wage increases (as much as $193 per month) were reportedly the largest in a quarter century and came alongside record bonuses.

The auto giant isn’t alone. Nippon Steel and Panasonic likewise met organized labor’s demands, as did fellow carmaker Nissan. Honda and Mazda recently said they’re raising wages too.

Fumio Kishida wants to see wage growth outstrip inflation. On Wednesday, cabinet secretary Yoshimasa Hayashi heralded “strong momentum for wage hikes” and emphasized that the trend needs to trickle down (if you will) to smaller firms.

As a reminder that no one should need, wages in Japan have lagged the OECD average for as long as a lot of market participants can remember.

Speaking to Japanese lawmakers on Wednesday, Kazuo Ueda called the annual wage wrangling “critical” for monetary policy. Rengo, the country’s largest union group, said employees at Japan’s biggest corporations demanded annual pay hikes of 5.85%. If those demands are met, it’d be the first time in more than three decades that the 5% line was exceeded. Rengo will release a preliminary summary on Friday.

An economist at Japan Research Institute who spoke to Reuters said overall increases are tracking as high as 4.3% and could exceed 5% for large companies, a result he described as robust, before cautioning that it’s far too soon to draw conclusions about the “sustainability” of the trend and whether smaller firms will heed the government’s call to raise their own pay.

Toyota’s head of human resources said the company “hopes” its suppliers will raise pay too, adding that the automaker’s “working in parallel to improve the environment for suppliers and dealers.”

For markets, the stakes are quite high. Earlier this week, I asked if the record-setting run in Japanese equities might’ve been more a function of FOMO and a weak yen than faith in the domestic macro fundamentals. The moment of truth is nigh on that question.

Japanese shares slipped a third day Wednesday, and a sixth in seven sessions. The Nikkei’s around 4% off the highs.

As noted in the linked March 11 article, an end to negative rates and the formal abandonment of yield-curve control would almost surely be accompanied by the cessation of BoJ ETF-buying. I realize this is still difficult for a lot of market participants to wrap their minds around, but the BoJ bought equity ETFs every trading day during which Japanese stocks fell 2% or more during the morning session looking back three years (such occasions were rare last year, though, so intervention wasn’t actually frequent). That backstop is likely to disappear, I suggested.

Fast forward 48 hours and Bloomberg said the BoJ is indeed pondering an end to ETF purchases. “Officials see little need to keep buying ETFs to limit risk premiums in a market that recently hit a record high,” sources told the outlet. (That wasn’t supposed to be funny, but it certainly elicited a chuckle from me: No, you probably don’t need to support a market setting fresh records. Or who knows, maybe you do! Maybe that begs the question. Maybe the records are in part a function of faith in the backstop. And by the way, what happens to your giant equity book if stocks start to fall once you step back?)

Meanwhile, BlueBay said short JGBs (the most infamous widow-maker trade on the planet) is now its “largest macro-risk position.” It’s also running a “small” bullish yen bet. So, that’s two simultaneous wagers on BoJ normalization.

For his part, SocGen’s Albert Edwards — who knows a thing or two about deflation and Japan — on Wednesday flagged a persistent disparity between the “core, core” inflation measure and “regular core,” if you will, illustrated on the left below.

As the chart on the right shows, inflation excluding all food in Japan is still running well below that in other countries.

“Investors see ‘core, core’ still well above 3% and quite reasonably conclude that the BoJ will decide the battle against deflation is won and tighten monetary policy,” Edwards wrote. “Maybe they will.”

“However, an unusually wide gap has opened between the officially-measured ‘core, core’ CPI rate” and the core inflation metric that’s “comparable with rates elsewhere,” Albert went on. “On this measure, it is clear that Japan may not be completely out of the deflationary woods and any tightening might be premature — yet again.”