Japan June real wages down for 15th month despite solid nominal growth

By Kantaro Komiya

TOKYO (Reuters) -Japanese real wages fell for a 15th straight month in June, while nominal pay growth also slowed, suggesting companies will need to do more on salary hikes to drive a virtuous growth cycle and allow the central bank to consider exiting easy policies.

Separate data on Tuesday showed Japan’s consumer spending shrank for the fourth month in June, underlining the challenge facing policymakers as the economy remains underpowered despite the end of COVID curbs months ago.

Japan’s wage trends are closely watched by global financial markets as the Bank of Japan has emphasised that sustainable pay hikes amid four-decade-high inflation is a prerequisite for dismantling its massive monetary stimulus.

“Japanese wage growth tends to stall once annual spring wage negotiations are over – the rise we’re seeing isn’t strong enough to boost consumption and achieve (BOJ’s) 2% inflation target,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Inflation-adjusted real wages, a barometer of consumers’ purchasing power, fell 1.6% from a year earlier, a faster decrease than May’s 0.9% drop, extending a streak of contractions since April 2022.

That was because a 2.3% nominal increase in total cash earnings, or nominal wages, was far outpaced by 3.9% consumer price inflation under a measure the ministry uses that excludes owners’ equivalent rent.

Nominal pay growth in June was lower than a revised 2.9% rise in May, the fastest growth in nearly three decades thanks to solid jump in base salaries.

June’s base salary increase was 1.4%, also smaller than May’s 1.7%. “That means that regular wage growth has yet to surpass 2%, which the Bank of Japan considers necessary for above-target inflation to be sustained,” Marcel Thieliant, Capital Economics’ Head of Asia Pacific, wrote in a note.

Workers at major Japanese companies saw an almost 4% wage hike this year, according to a survey by elite business lobby Keidanren, while the country’s National Personnel Authority on Monday advised the central government to hike its workers’ base pay 10 times more than the average in the previous five years.

There are signs of broadening wage hikes. A government panel last month approved the biggest-ever increase in the national minimum wage. A July survey by research firm Teikoku Databank showed on Monday that 51.4% of companies across Japan were experiencing a shortage of regular workers, near the historical high of 53.9% seen in November 2018.

Overtime pay, a gauge of business activity strength, rose 2.3% in June, the fastest in six months, health ministry data showed. Special payments, including summer bonuses, rose 3.5%.

WEAK CONSUMPTION

Separate government data showed household spending fell 4.2% in June from a year earlier, a fourth month of decline and in line with a median market forecast. Although items such as cars and travel expenses grew, the downturn in food and household electronics led the overall decrease.

On a seasonally adjusted, month-on-month basis, household spending increased 0.9%, against forecast for a 0.3% gain.

Real wages will continue to shrink and squeeze consumption until next April or later, Norinchukin’s Minami said, attributing it to sticky consumer inflation and the yen’s decline. Nominal wage growth itself may slow next year, he added.

“If the Japanese stock market couldn’t keep up with the current rally and companies record not-so-great earnings, then the momentum for further pay hikes may be lost.”

($1=142.2100 yen)

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