Salaries extend slide as inflation takes root

Bloomberg

Salaries extended the longest tumble since 2010, increasing pressure on household finances as inflation begins to take root.

Regular wages excluding overtime and bonuses fell 0.4 percent in October from a year earlier, a 17th straight monthly decline, according to labor ministry data released Tuesday. Total cash earnings rose 0.1 percent.

The slide in wages threatens living standards as consumers face the prospect of sustained inflation on top of a sales tax increase next April. As a weaker yen helps boost company profits, the focus is turning to salary talks early next year that may determine the success of Prime Minister Shinzo Abe’s bid to reflate the world’s third-largest economy.

“Raising wages is essential for Japan’s sustainable economic recovery,” Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc. in Tokyo, said before the release. “It won’t be easy for manufacturing companies to raise base pay” as they are competing globally, he said, adding that they will probably just increase bonuses.

Prices excluding energy and fresh food rose 0.3 percent in October from a year earlier, the most in 15 years, indicating inflationary pressures are broadening beyond electricity and gas price increases fueled by the yen’s decline.

The currency has fallen about 16 percent against the dollar this year, weakened by the Bank of Japan’s record easing as it targets 2 percent inflation.

The increase in total cash earnings stemmed from a 5.4 percent climb in overtime payments and a 3.2 percent gain in bonuses, the data show. In the manufacturing sector, bonuses jumped 30 percent, while regular wages were unchanged.

The Japanese Trade Union Confederation (Rengo) plans to demand pay increases of more than 1 percent in the spring labor negotiations, according to a statement in October.

Nomura Holdings Inc., the nation’s biggest brokerage, said Friday it will increase base pay by an average of 2 percent in April. Lawson Inc., the nation’s second-largest convenience store chain, also hopes to raise wages by 2 percent to 3 percent in the fiscal year starting April, Chief Executive Officer Takeshi Niinami said in October.

“We can see signs of pay raises in some nonmanufacturing industries,” Suezawa said. “That might have a spillover effect into other industries.”

Companies’ profits rose more than 24 percent in the third quarter from a year earlier, the most in almost three years, the Finance Ministry said Monday.

Bank of Japan board member Takahide Kiuchi said last week that it’s important to create a virtuous cycle where inflation gradually rises as the economy grows and living standards improve.