TOKYO (Kyodo) -- Japan's annual spring wage negotiations began Wednesday, with the leaders of the country's top business lobby and biggest labor federation agreeing on the importance of maintaining momentum for pay hikes amid soaring prices.

The focus is on whether an average wage increase of 5 percent or more, a level demanded by the Japanese Trade Union Confederation, known as Rengo, will be agreed following significant increases in the past two years, observers said.

The labor federation also said it is aiming for an average pay hike of 6 percent or more at small and medium-sized companies to narrow the wage gap with larger corporations, many of which are members of the Japan Business Federation, known as Keidanren.

"It is a responsibility for private firms to lead the Japanese economy to a virtuous cycle of growth and distribution by raising wages," Masakazu Tokura, chairman of the business lobby, said in a meeting with Rengo.

Tomoko Yoshino, the head of Rengo, said, "We have to make sure pay increases spread to every corner of the country, including regional economies and small and medium-sized enterprises."

The Bank of Japan, meanwhile, is closely monitoring wage trends to decide when to raise its policy rate from the current level of around 0.25 percent to prevent prices from rising sharply. The central bank is set to hold a two-day policy meeting starting Thursday.

The average monthly wage increase at large companies in Japan was 5.58 percent last year, surpassing 5 percent for the first time in 33 years, according to a Keidanren tally.

Smaller firms offered an average pay increase of 3.62 percent during the same period, the Japan Chamber of Commerce and Industry said, indicating it is difficult for them to boost salaries as many are struggling to pass on higher costs to consumers.