Japan real wages growth slowest in nearly 2 years, to chill spending

[TOKYO] Japan's March real wages fell at the fastest pace in almost two years, pressured by meagre nominal pay hikes and a slight rise in consumer prices, posing a setback for Prime Minister Shinzo Abe's attempts to revitalise the economy.

The wages figures back recent data showing household spending fell more than expected and core consumer prices rose at a slower-than-expected pace in March, suggesting an exit from the central bank's radical quantitative easing programme remains distant.

Inflation-adjusted real wages dropped 0.8 per cent in March from a year earlier to mark their biggest rate of decline since June 2015, labour ministry data showed on Tuesday.

In nominal terms, wage earners' cash earnings fell 0.4 per cent year-on-year in March, also notching the biggest rate of decrease since June 2015.

The data underscores the fragile and patchy nature of Japan's economic recovery. It also bodes ill for Mr Abe, who has repeatedly urged companies to lift worker compensation to foster sustainable growth in the world's third-largest economy through a virtuous cycle of increased household spending, higher business investment and production.

The drop in March nominal cash earnings and real wages partly reflected a pullback from the same period a year earlier, when wage growth was solid, a labour ministry official said. In March 2016, nominal cash earnings rose 1.5 per cent on-year and real wages increased 1.6 per cent.

"We need to look at the data for April onward. We can't say by looking at just this month that the trend (in wage growth) has shifted," the official said.

Businesses have been reluctant to raise wages despite a tight labour market. An overwhelming majority of Japanese companies said they will raise wages at a slower pace than they did last year, a Reuters poll found.

Regular pay, which determines base salaries, dipped an annual 0.1 per cent, falling for the first time since May last year.

Overtime pay, a barometer of strength in corporate activity, fell 1.7 per cent in March from a year earlier.

Special payments, such as bonuses, fell 3.6 per cent in March on-year, also marking the largest drop since June 2015.

Special payments are generally small, so even a slight change in the amount can cause big percentage changes.

REUTERS