Massive base pay jump still leaves doubts
TOKYO: Japanese workers’ base pay jumped by the largest margin since 1994 in a sign that corporate pledges to offer wage increases are starting to take effect, though market players appeared unconvinced over the strength of the trend.

Base pay rose 2.3% from a year ago in April to drive up nominal wages by 2.1%, the Labour Ministry reported yesterday.

Despite the slew of improved figures, pay continued to lag inflation and market participants appeared to latch onto weaker-than-expected growth in cash wages in data that avoids sampling issues.

The yen weakened back past the 155 mark against the US dollar after recent gains.

For economists, the results largely offered fresh evidence for the Bank of Japan (BoJ) that a virtuous cycle linking rising wages to demand-led price increases may be coming closer to fruition.

The central bank is seeking stronger confirmation of the trend before raising interest rates again following its first rate hike since 2007 in March.

“BoJ governor Kazuo Ueda has indicated the possibility of a policy change if he is convinced of the trend,” said Masato Koike, economist at Sompo Institute Plus.

“If nominal wages are expected to increase driven by base pay, and inflation is seen stabilising, the bank will be more likely to move, even if real wages remain negative.”

The BoJ meets next week to decide on policy. The most favoured view among economists polled in April was for the bank to wait until October before raising rates, but expectations for an earlier move have risen since then, partly due to continued weakness in the yen, which threatens to stoke import price growth.

Yesterday’s data started to reflect the results of this year’s pay negotiations, in which workers secured an average wage increase of over 5%.

This marked the largest gain in three decades, according to a tally by the largest labour union federation.

The report showed that salary growth was evident across various sectors, spanning from manufacturing to services.

Wage gains resulting from annual pay tend to be reflected gradually in workers’ paychecks from April through the summer.

Nearly 40% of this financial year’s increase will be implemented by April, with this figure rising to 80% by July, according to a BoJ study.

Still, Japan’s wage figures have long been criticised for inconsistency, with many analysts preferring to focus on a subset of the data that avoid sampling issues that have affected the headline numbers over the years.

A stabler measure of the trend that avoids sampling problems and excludes bonuses and overtime showed wages for full-time workers gaining 2.1%.

A more volatile wage figure that includes the impact of overtime and bonus pay, rose 1.7%, missing a 2.1% forecast, offering pessimists reason to doubt the strength of the trend and push back against recent yen gains.

The currency weakened to 155.42 against the US dollar early yesterday from 154.95 immediately before the release.

“As we had quite a bit of yen strengthening yesterday, it’s easy for dollar buying to kick in,” said Hirofumi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Banking Corp.

“The weaker same sample cash pay gains in the monthly data provided a selling point.”

Real wages slid 0.7% in the latest month, marking the 25th consecutive decline as pay growth lags inflation.

The country’s key consumer price gauge has remained at or above the BoJ’s 2% price target for two years, making it difficult for wage gains to catch up.

A persistent weak yen may keep upward pressure on prices, posing the risk of a delay in real wages turning positive.

Even after the government spent a record 9.8 trillion yen in market intervention to prop up the yen over the past month, the currency has stayed shaky, trading at levels about 10% weaker than a year ago.

Looking ahead, Bloomberg economist Taro Kimura said May data is expected to show stronger pay gains, reflecting the shunto’s picture more fully.

Amid lingering inflation, households have reduced spending every month for the past year, putting a drag on the nation’s economy as a whole.

Japan’s economy contracted in the first quarter, as consumers and businesses trimmed spending, a trend likely to be confirmed in revised gross domestic product data set to be published on Monday.

Sluggish domestic demand bodes ill not only for the BoJ’s policy deliberations, but also for Prime Minister Fumio Kishida, who seeks to declare that the nation has finally broken free of the deflationary mindset that weighed on the economy for decades after the asset price bubble burst around 1990.

In an attempt to stimulate private consumption and solidify the virtuous economic cycle, the government rolled out a 40,000 yen tax rebate starting in June.

Kishida told a business lobby last week that this is a critical moment to see if the economy can overcome deflation and move to a new economic stage. — Bloomberg
Economy,JapanWages,BasePayIncrease,BOJ,Inflation,Yen,Deflation,ConsumerSpending
Japanese workers’ base pay jumped by the largest margin since 1994 in a sign that corporate pledges to offer wage increases are starting to take effect, though market players appeared unconvinced over the strength of the trend.