Japan wages fall in blow to consumer spending, BOJ's inflation quest

[TOKYO] Wages of Japanese workers fell in December at their fastest pace in five months, in a possible sign that consumers could cut back on spending and further complicate the central bank's quest to reach its 2 per cent inflation target.

The tepid wages also suggest the government faces a difficult task in getting companies to raise wages by 3 per cent or more this year at annual wage negotiations with labour unions.

Japanese Prime Minister Shinzo Abe's economic agenda, known as "Abenomics," has succeeded in raising corporate investment and drawing more women into the workforce, but it remains less successful in convincing companies to raise wages.

"Nominal wage gains simply aren't keeping up with prices,"said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

"This has been a problem since the beginning of 'Abenomics.'

Meeting the government's target of a 3 per cent wage increase is a high hurdle."

Real wages - adjusted for inflation - fell 0.5 per cent in December from the same period a year ago, labour ministry data showed on Wednesday. That followed a 0.1 per cent annual increase in November and marked the biggest decline since a 1.1 per cent annual decrease in July 2017.

For all of 2017, real wages fell 0.2 per cent, following a 0.7 per cent increase in the previous year.

Nominal cash earnings rose 0.7 per cent in December from the same period a year earlier, slower than a 0.9 per cent annual increase in the previous month, the data showed.

Special payments, which include bonuses, rose 0.7 per cent on-year in December, following a revised 7.8 per cent annual increase the month before. The data suggest that many companies paid year-end bonuses in November instead of December.

Overtime pay, a barometer of strength in corporate activity, rose an annual 0.9 per cent in December, slower than a revised 1.9 per cent annual increase in November.

In April-June last year Japan's output gap showed demand exceeded supply by the most in more than nine years, according to BOJ data.

Central bank officials and economists outside the BOJ took that as a positive sign that inflation would start to accelerate and put an end to years of falling prices.

Yet, data on consumer prices and wages have failed to put inflation growth on a sustainable footing.

BOJ officials hope strong economic growth will help spark this shift, though firms remain wary of scaring away cost-sensitive consumers with price hikes.

Japan's economy is forecast to have grown for an eighth straight quarter in October-December, the longest period of expansion in about 30 years, a Reuters poll showed before release of the data next week.

REUTERS