Wage surge: Ueda attends a news conference at the central bank’s headquarters in Tokyo. The market is closely watching wage negotiations set to culminate in March to assess the sustainability of wage growth. — Bloomberg
TOKYO: Japanese nominal wages rose at the fastest pace in nearly three decades, supporting the Bank of Japan’s (BoJ) latest rate hike decision and keeping the bank on track for further tightening steps.
Nominal cash earnings for workers climbed 4.8% in December from a year earlier, up from a revised 3.9% gain in November, the labour ministry said yesterday.
The reading exceeded economists’ consensus forecast and marked the largest jump since 1997.
The strong gain was driven by a jump in bonuses. The yen strengthened to as much as 153.90 against the dollar following the release, after trading around 154.40 shortly before the data came out.
In another positive development for pay, real wages grew for a second consecutive month in December.
Economists had expected real wages to fall amid accelerating inflation.
Overall inflation in the country has been above 2% for nearly three years, hitting 3.6% in December.
Wage trends continue to face market scrutiny even after the BoJ’s latest decision to raise borrowing costs, as they could influence the timeline of future rate hikes.
Last month the central bank implemented its third rate increase in less than a year, after evaluating wage growth and the initial market reaction to Donald Trump’s return to the White House.
“Wage trends will of course remain a key indicator for the BoJ’s policy decisions,” said Sompo Institute Plus senior economist Masato Koike.
“The trend so far looks on track, but it’s unlikely that base pay will see further gains until the spring negotiations,” he said, adding that the bank’s focus is on how the spring pay talks unfold.
At the post-decision press conference, governor Kazuo Ueda signalled the possibility of additional rate hikes, noting that the country’s interest rates still remain below the neutral level.
Ueda emphasised the need to monitor economic conditions before making the next move, reminding the market of the importance of keeping an eye on pay developments.
In yesterday’s data, a more stable measure of wage trends that avoids sampling distortions showed that full-time workers’ base pay rose 2.8%, maintaining growth above 2% for more than a year.
Economist Taro Kimura said: “A surprisingly strong increase in Japan’s labour cash earnings in December – propelled by hefty winter bonuses – will boost consumption and consumer prices.
“The details show base-pay gains remained solid.
“The strong data will probably bolster the BoJ’s confidence that wage trends are consistent with 2% inflation.”
Most BoJ watchers anticipate another tightening step in roughly six months, with July emerging as the most popular timing, according to a Bloomberg survey published last week following the January meeting.
Looking ahead, the market is closely watching wage negotiations set to culminate in March to assess the sustainability of wage growth.
So far, the talks appear to be progressing solidly, with some large companies, including Asahi Breweries Ltd and Aeon Co
, reportedly pledging to offer some workers salary increases exceeding 7%.
Japan’s largest trade union leader has also been meeting frequently with business representatives to push for higher wages, emphasising their goal of 5% for overall pay gains, and a slightly higher 6% target for smaller firms.
For real wages to see sustained gains, a key concern remains inflation, and ongoing yen weakness which is driving up import prices.
Japan’s prices have risen at or above the BoJ’s 2% inflation target for nearly three years, weighing on consumer sentiment.
The yen is likely to stay under pressure for some time, as US Federal Reserve officials are increasingly signalling a potential delay in rate cuts amid Trump-driven uncertainties.
Additionally, a wave of tariff-related announcements has heightened inflation risks in the United States, which could further weaken the yen.
Slow real wages have already made many households cautious about spending, a source of concern not only for the BoJ, but also for Prime Minister Shigeru Ishiba’s government.
Ishiba’s administration is aiming to shore up consumption through measures in the 21.9 trillion yen stimulus package, including utility subsidies and cash handouts for low-income households.
Japan’s latest consumption trend is set to be shown in upcoming data, including household spending data due tomorrow.
The gross domestic product figure for the final three months of last year will also be released later this month, with economists expecting a slowdown in private consumption.
“The upward wage trend has not fed into consumption, largely due to real wages growth not clearly increasing,” said Sompo’s Koike.
“If real wages steadily grow as inflation slows down towards the middle of the year, there is a possibility that private spending will recover from that point.” — Bloomberg
