[TOKYO] Japanese workers’ nominal pay rose at the fastest clip in seven months, with real wages increasing for the first time this year, boosting the case for the Bank of Japan (BOJ) to consider a rate hike in the months ahead.
Nominal wages increased 4.1 per cent in July from a year earlier, accelerating from a revised 3.1 per cent gain in June, the labour ministry reported on Friday (Sep 5). The figure outpaced economists’ forecast of 3 per cent growth and marked the steepest increase since December.
Real cash earnings also advanced for the first time in seven months, rising 0.5 per cent and beating the consensus estimate of a 0.6 per cent decline.
Base salaries rose 2.5 per cent, and a more stable measure, which avoids sampling issues and excludes bonuses and overtime, climbed 2.4 per cent for regular workers.
Friday’s data showed that wage growth momentum continues, after Japan’s largest federation of unions won pledges from employers for pay increases exceeding 5 per cent for a second consecutive year. This year’s gains, the largest in 34 years, are now mostly reflected in pay packets.
The figures will bolster expectations that the BOJ can hike its benchmark rate again this year. Economists generally expect authorities to hold settings steady when they next set policy on Sep 19, but many see the possibility of a quarter-point hike as early as October.
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BOJ governor Kazuo Ueda reiterated on Wednesday that the central bank will act if prices and the economy perform in line with expectations. Data due next Monday is expected to confirm that the economy expanded for a fifth straight quarter in the three months through June.
Sustained increases in pay are a key component of the central bank’s quest to achieve a virtuous cycle in which wage growth fuels consumption, paving the way for demand-led price gains.
The latest wage data were supported by robust summer bonuses, which climbed 7.9 per cent from June. There is no guarantee that increases in variable pay can be sustained as the nation’s largest manufacturers contend with US President Donald Trump’s ongoing tariff campaign, which has hit automakers particularly hard.
Trump signed an executive order on Thursday implementing the July trade deal between the two nations. Under that agreement, levies on US imports of Japanese cars will be lowered to 15 per cent from the current 27.5 per cent.
Japan’s manufacturers recorded an 11.5 per cent decline in pre-tax profit in the April-June period, with makers of transport equipment recording a 29.7 per cent decline. So far automakers have borne much of the tariff impact, sacrificing profit margins in order to preserve market share.
Toyota Motor recently warned of a 1.4 trillion yen (S$12.1 billion) hit to its bottom line from the levies. It is still unclear, however, how much room manufacturers will have to lift wages going forward if profits remain under pressure. BLOOMBERG
