The nation’s most severe labor shortage in almost quarter of a century will support the central bank’s inflation target and weaken appetite for already low-yielding bonds.
The Bank of Japan’s quarterly tankan survey on Monday showed it has not been so difficult for employers to fill vacancies since 1992, and they expect the situation to get worse. Yields on 10-year Japanese government bonds are seen rising to 0.5 percent by the end of 2016, from 0.3 percent on Tuesday in Tokyo, according to the median estimate of 20 economists surveyed by Bloomberg.
BOJ Gov. Haruhiko Kuroda has stressed the significance of higher wages in achieving his 2 percent inflation goal as oil prices slump and the impact of a weaker yen wears off.
The central bank will probably keep stimulus policies unchanged on Dec. 18 after the jobless rate in the world’s third-biggest economy sank to a 20-year low of 3.1 percent in October and overall monthly earnings gained for a fourth month.
“The BOJ may use the tankan’s labor index at its meeting this week to support its view easing is having the intended effect and conditions are improving without additional stimulus,” said Hideo Kumano, the chief economist at Dai-ichi Life Research Institute.
“External factors may push yields low in the near-term, but labor shortages put upward pressure on wages and slow declines in yields. JGB yields are likely to crawl higher over the longer term.”
In a Bloomberg survey conducted Nov. 13-17, only one of 41 economists forecast the BOJ will expand monetary policy this month and 12 expect further easing at its meeting in January, while 46 percent said the central bank is done with additional stimulus.
With about ¥40 trillion of notes maturing in 2016, the BOJ will need to increase total bond purchases by about ¥10 trillion compared with this year to meet its goal of expanding the monetary base by ¥80 trillion annually, estimates Shuichi Ohsaki, the chief rates strategist at Bank of America Corp.’s Merrill Lynch unit in Tokyo.
The prospect for higher wages may ease the strong downward pressures on yields coming from the BOJ’s aggressive debt buying.
After touching a record low 0.195 percent in January, the benchmark 10-year sovereign yield has held above 0.29 percent since May. It will rise to 0.44 percent by the end of the 2016 first half and 0.5 percent by the end of that year, according to the median forecast in Bloomberg’s economist survey.
Base wages for Japanese workers crept up 0.1 percent in October from a year ago — the eighth straight increase — while overall monthly earnings, which includes bonuses and overtime payments, rose for a fourth month, climbing 0.7 percent. Real cash earnings, which are adjusted for inflation, gained 0.4 percent.
“Recent labor-related data have been solid and the tankan’s tightening labor gauge may support the view that wages will gradually rise to push up inflation, in line with the BOJ’s scenario,” said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
“That’s likely to make investors wary of moving forward with bond purchases. The focus turns to further labor tightness actually resulting in wage growth.”
While workers are most in demand in decades, that is only after taking into account the use of temporary, contract and part-time positions. Those nonregular jobs now make up almost four out of 10 workers compared with about 20 percent around 1992, and get paid about 40 percent less on a comparable basis, government data show. This signals that Prime Minister Shinzo Abe and Kuroda may not see the rising incomes they need to spur consumer spending and revitalize the economy.
“People are not going to spend money when it’s these jobs that are increasing,” Rikio Kozu, the president of the Japanese Trade Union Confederation, said in an interview last week. The unions under Rengo, as the confederation is known, represent 6.8 million workers and based on a tally in July, 2.1 million members won base-wage gains of about 0.7 percent for 2015.
The BOJ projects its 2 percent inflation goal will be met around the latter half of the six-month period through March 2017. “I have great interest in how wages will be raised at next spring’s talks,” Kuroda said last month, referring to annual pay negotiations between employers and unions.
Keidanren, a lobby group representing more than 1,300 of the country’s biggest companies, said in October average winter bonus payouts by large companies will rise 3.13 percent from a year earlier.
“Wage increases are key to realizing the BOJ’s scenario,” said Jun Fukashiro, a senior fund manager in Tokyo at Sumitomo Mitsui Asset Management, which looks after the equivalent of $111 billion.
“The increase in wages alone won’t help boost inflation to 2 percent, but the government may expand fiscal spending to bolster the economy ahead of an Upper House election next summer, raising the 10-year yield range to 0.3-0.6 percent next year.”