Japan's real wages slipped in September for an 18th month, while consumer spending extended a monthslong decline, with rising prices squeezing households' purchasing power, and likely to add to pressure from labor groups for higher wage increases.
Financial markets worldwide pay close attention to the wage trends in the world's third-largest economy. The Bank of Japan regards sustainable pay increases as one of the prerequisites for unwinding its ultraloose monetary stimulus.
Inflation-adjusted real wages, a barometer of consumer purchasing power, dropped in September by 2.4% from a year earlier after a revised 2.8% fall the month before, data from the Health, Labor and Welfare Ministry showed Tuesday.
Nominal pay growth in September was 1.2%, after a downward revision of 0.8% in August and only slightly better than in July.
While improving, the still sluggish wage growth in nominal terms is likely to reinforce the Bank of Japan’s need to wait for further signs of a virtuous cycle between wages and prices to emerge, before embarking on any major changes to policy direction.
Last week the central bank decided to further loosen its grip on 10-year yields, replacing the existing 0.5% reference point ceiling with 1%. While the shift suggested another small step toward normalization, Gov. Kazuo Ueda remained dovish during the post-decision news conference, reaffirming the bank’s commitment to patiently continuing with monetary easing.
Ueda also mentioned next year’s spring wage negotiations as a key event for the BOJ as it assesses the wage trend.
Major companies agreed to average pay hikes of 3.58% this year, the highest increase in 30 years. Average Japanese workers' wages had remained virtually flat since the asset-bubble burst in the early 1990s until this year. Japan's largest labor organization Rengo is expected to demand pay increases of 5% or more, while the largest industrial union, UA Zensen, will seek a 6% wage increase in negotiations early next year.
Some economists, however, are not optimistic about the prospect of a recovery in consumption. "The increase in nominal wages from this year's spring labor negotiations is usually reflected by the end of August, so there is no reason for that to go up from that point," said Shunsuke Kobayashi, chief economist at Mizuho Securities.
Also, even if higher wages are negotiated for next year, there is a risk of inflation re-accelerating if the government did not extend the current fuel and power subsidies, Kobayashi said.
Prime Minister Fumio Kishida's government last week drew up a ¥17 trillion ($113.72 billion) economic stimulus package that includes slashing annual income tax and other taxes by ¥40,000 per person and paying ¥70,000 to low-income households.
Special payments fell 6% year-on-year in September after a revised 6.3% decline in August. The indicator tends to be volatile in months outside the twice-a-year bonus seasons of November to January and June to August.
Base salary growth in September advanced by 1.4% year-on-year, from a revised 1.2% increase the previous month, the data showed. Overtime pay, a gauge of business activity, went up in September by 0.7% year-on-year, after a revised 0.2% gain in August.
Meanwhile, household spending decreased 2.8% in September from a year earlier, falling for seven months in a row, separate data on Tuesday showed. It was roughly in line with the median market forecast for a 2.7% decline.
On a seasonally adjusted, month-on-month basis, household spending climbed 0.3%, versus an estimated 0.4% fall.
Expenses in eating out, transportation and automobile-related spending went up due to an increase in outings, while spending on food, housing, furniture and household goods decreased partly due to rising prices, a government official said.
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