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Regular wages increased in July by the most in nearly 10 years, aiding Prime Minister Shinzo Abe’s efforts to reflate the world’s third-biggest economy.

Base pay climbed 0.6 percent from a year earlier, the biggest increase since November 2005, the labor ministry said on Friday. Overall wages adjusted for inflation rose 0.3 percent, the first rise in more than two years, after a steep decline in the previous month.

Japan’s shrinking population is pressuring companies to raise pay to attract increasingly scarce workers. For Abe — who is urging businesses to pump more of their cash hoards into wages and investment — the key is for consumers to put the extra money to work in the economy.

“Monthly pay increases are picking up momentum as the effects of base pay hikes spread,” said Hiroshi Watanabe, an economist at SMBC Nikko Securities Inc. “With increasingly tighter labor markets, this trend will continue and gradually spur domestic consumption.”

Household spending unexpectedly fell in July, declining in every month expect one since the government raised the nation’s sales tax in April last year, according to data last week. Retail sales have fared better, supported by an influx in tourists, rising for a fourth straight month.

Differences in the timing of bonus payments from year to year have contributed to swings in the wage data, with overall labor cash earnings — which include overtime and special payments — falling 2.5 percent in June from a year earlier before rebounding 0.6 percent in July.

Inflation-adjusted incomes for households with at least one member working rose in July by the most since 2010, data showed last week.

The economy contracted an annualized 1.6 percent in April to June from the first quarter of the year, as consumers and businesses reduced spending and exports fell. Sluggish overseas shipments and industrial production are weighing on a rebound this quarter.

Weakness in exports and output will pass, Bank of Japan chief Haruhiko Kuroda said last week in New York, before data showed inflation as measured by the central bank’s key gauge disappearing for a third time this year.

Unions seek pay rises

Jiji

The Confederation of Japan Automobile Workers’ Unions, or JAW, is considering requesting a pay-scale hike for the shunto spring wage negotiations for the third straight year in 2016, JAW President Yasunobu Aihara said Thursday.

The umbrella body of labor unions at Japanese automakers requested a hike of ¥6,000 or more in monthly base wages in this year’s wage negotiations.

Of 1,113 labor unions whose labor-management negotiations were concluded in this year’s shunto, 804 received base wage hikes, which averaged ¥1,625, according to JAW. Last year, 728 labor unions saw their base wages rise ¥1,161 on average.

For this year’s shunto, there was a gap of at least ¥1,000 in the average hikes between labor unions with 3,000 members or more and those with fewer than 300 members, according to the JAW.

Aihara said at the JAW’s regular meeting in Chiba, that salaries increased on the whole, but gaps in pay hikes between large and small companies grew.

Requesting a pay-scale hike in the 2016 shunto negotiations will be one of the most important ways to improve income levels and create a better economic cycle, he added.

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