Waiting game: A worker outside a store in Tokyo. The central bank is scheduled to hold its next policy meeting on July 17. — Reuters
Tokyo: Growth in Japanese workers’ base pay picked up as annual wage hikes began to kick in, in a positive development for the Bank of Japan (BoJ) as authorities look for an opportunity to raise interest rates even as domestic and global economic risks mount.
Base salaries rose by 2.2% in April from a year ago, accelerating from the previous month’s revised 1.4% gain, the Labour Ministry reported yesterday.
Nominal wages increased 2.3%, compared with economists’ consensus estimate of a 2.6% gain.
A more stable measure of wage trends that avoids sampling problems and excludes bonuses and overtime showed wages for full-time workers climbed 2.5%, staying at or above 2% for a 20th consecutive month.
On the downside, real cash earnings dropped 1.8% from a year earlier, falling more than the forecast 1.6% decline.
Growth in nominal wages is a key component of the virtuous economic cycle long sought by the BoJ.
Authorities are looking for indications that rising pay is feeding into demand-led price gains as they mull the future course of policy.
Yesterday’s data will likely encourage BoJ governor Kazuo Ueda and his board to keep considering the scope for a rate hike if conditions allow.
“Today’s figure partially reflects the outcome of this year’s labour negotiations, and it’s a decent start,” said Toshifumi Umezawa, a senior strategist at Pictet Asset Management Japan Ltd. “At this level, I’d say it keeps the BoJ on track.”
The outlook for wages is generally bright after annual negotiations between unions and companies resulted in pledges from employers to increase pay by more than 5% for a second straight year.
Some workers saw their largest pay increases in over three decades, according to the latest tally by the nation’s biggest trade union federation Rengo.
Those gains will be more fully reflected in payroll stubs from around June, BoJ research has shown in the past.
To be sure, some economists have warned that US President Donald Trump’s tariffs could squeeze corporate profits, limiting the ability of some firms to offer generous compensation to workers.
The BoJ noted in its latest outlook report that the pace of nominal wage growth is likely to slow further out, affected by the decline in corporate profits, without providing context.
Data in previous months were affected by the leap-year effect, and that impact faded in the latest month, partially boosting the April figures, according to Taro Kimura, an economist at Bloomberg Economics.
Bloomberg Economics said: “Base wages for full-time workers on a same-sample basis – the central bank’s main focus – accelerated but remained below the 3% level governor Kazuo Ueda has flagged as consistent with the 2% inflation target.
“In a nutshell, the data may look solid on the surface, but the details offer no reason for the BoJ to hasten policy normalisation.”
A key driver behind wage growth has been the sustained tightness in the labour market, with the unemployment rate staying below 3% for more than four years.
The central bank also suggested that the growth rate of nominal wages is likely to remain elevated for the time being, citing continued labour shortages and limited slack in supply.
The BoJ is expected to hold its benchmark rate steady when it next sets policy on June 17, with the market’s focus likely to be the bank’s updated plans for bond purchases as it proceeds with quantitative tightening. Meanwhile, the continued decline in real wages underscores persistent inflationary pressures, clouding the trajectory for domestic demand.
In April, inflation accelerated to the fastest clip in more than two years, driven by higher food and energy costs.
The trend will likely persist for at least the next few months, as indicated by data for the capital.
While nominal wages have steadily risen over the past four years, real earnings have only posted gains in four of those months.
Economists widely expect real wages to stay subdued for some time before they begin to increase steadily.
Stagnant disposable income is damping consumer sentiment and weakening household spending, raising concerns that Japan could slip into a technical recession. In the first three months of the year, the world’s fourth-largest economy shrank mainly due to weaker trade and sluggish consumption.
A revised gross domestic product (GDP) figure due next Monday is expected to show GDP remained in contraction.
Falling take-home pay has also fuelled public dissatisfaction, adding pressure on Prime Minister Shigeru Ishiba as a critical upper house election looms in July.
In response, his administration has unveiled measures aimed at both curbing inflation and boosting wages.
Among the latest steps is a sector-specific plan to raise minimum wages, mostly focusing on enhancing labour productivity through digitalisation and automation.
The plan is a possible path toward the target of raising the minimum hourly wage to 1,500 yen an hour or about US$10.45 within five years, which would require annual increases of over 7% from the current 1,055 yen.
In the same policy package, Ishiba’s government set a goal of reaching 1% annual gains in real wages by the fiscal year starting in April 2029.
“Ongoing inflation is a negative factor” for Ishiba ahead of the upper house election, Umezawa said, adding that the government needs to keep pursuing steps to cap prices and spur wages. “All they can do now is keep pushing hard right up to the last minute.” — Bloomberg
