Japan’s base pay rises most since 1994 as wage deals kick in
JAPANESE workers’ base pay jumped by the largest margin since 1994 in a sign that corporate pledges to offer the biggest wage increases in three decades are starting to take effect.
Base pay rose 2.3 per cent from a year ago in April to drive up nominal wages by 2.1 per cent, the labour ministry reported on Wednesday (Jun 5). A stabler measure of the trend that avoids sampling problems and excludes bonuses and overtime also showed wages for full-time workers gaining 2.1 per cent.
The results offer 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.
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.
Wednesday’s data reflect the results of this year’s pay negotiations, in which workers secured an average wage increase of over 5 per cent, marking 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 per cent of this fiscal year’s increase will be implemented by April, with this figure rising to 80 per cent by July, according to a BOJ study.
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The tight job market will likely continue to feed into higher wages and prices down the line, with Japan’s jobless rate consistently below 3 per cent, the lowest among nations in the Organization for Economic Cooperation and Development. In the latest outlook report, the BOJ stated that “upward pressure on wages could intensify with labour market conditions tightening”.
Still, real wages slid 0.7 per cent 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 per cent 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 (S$85 billion) in market intervention to prop up the yen over the past month, the currency has stayed shaky, trading at levels about 10 per cent weaker than a year ago.
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 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
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