Japan base pay gains by record, keeps door open for Bank of Japan hike
BASE salaries for regular workers in Japan rose by a record, a further indication of progress towards a positive economic cycle that will support market speculation of a near-term rate hike by the central bank.
Base pay for full-time workers increased by 2.8 per cent in October from a year ago, the biggest gain for comparable data back to 1994, the labour ministry reported on Friday (Dec 6). Real cash earnings remained unchanged, avoiding a decline for the first time in three months, and beating economist estimates of a decrease.
Growth in nominal wages for all workers accelerated to 2.6 per cent from 2.5 per cent the previous month, matching estimates. A more stable measure of wage trends that avoids sampling problems and excludes bonuses and overtime showed wages for full-time workers increased by 2.8 per cent.
Market participants are monitoring wage trends, a key determinant for achieving a positive economic growth cycle, in an attempt to predict the Bank of Japan’s next interest rate hike timing. The yen was largely unchanged after the result.
Governor Kazuo Ueda reiterated in an interview with the Nikkei newspaper last weekend that authorities would raise rates if the economy performs as projected. He went further to state that the timing for a hike is “nearing”, as economic data remains on track.
Economists and market players remain split over whether the central bank will raise rates in December or January. The central bank is scheduled to deliver its next policy decision on Dec 19.
In less encouraging news for the central bank, household spending continued to fall from last year’s levels, dropping 1.3 per cent in October. Patchy real wage gains that weigh on consumption may limit Japan’s economic recovery.
During the Nikkei interview, Ueda also said he would like to observe the momentum of next year’s spring wage negotiations. The pay talks have started on an optimistic note, with labour unions setting ambitious targets similar to this year’s.
Japan’s largest trade union federation Rengo continues to push for at least a 5 per cent wage hike across industries, with even higher targets for smaller firms, while the metalworkers’ union has requested a record pay increase of 12,000 yen (S$107) per month. BLOOMBERG
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