Japan’s nominal wages rise again, backing BOJ rate hike case

JAPANESE wage growth remained firm on the back of solid corporate earnings and a tight labour market, bolstering the case for another Bank of Japan interest rate hike in coming months.

Nominal wages climbed 3.4 per cent in June from a year earlier, following a revised 3.3 per cent increase in May, the labour ministry reported on Wednesday (Aug 5).

The reading matched the median estimate in a Bloomberg survey of economists and extended the run of gains exceeding 3 per cent to five months, the longest such streak in 34 years.

Base pay also advanced 3.4 per cent, while a more stable measure — which strips out bonuses and overtime and sampling distortions — rose 2.9 per cent for full-time workers. Real wages gained 1.7 per cent, marking a sixth straight month of gains, the longest streak since 2021.

Japanese firms’ current profits rose more than expected year on year in the three-month period through March, extending gains for a sixth quarter, giving companies more capacity to raise wages as they also contend with a tight labour market.

Steady wage gains will likely help keep the BOJ on track for another rate hike no later than December — and possibly much sooner.

The central bank left its policy rate unchanged last week while signalling a move as early as September remains on the table.

The government’s coordinated currency intervention with the US to support the yen last Friday has further reinforced expectations of an earlier policy move.

Governor Kazuo Ueda struck a broadly hawkish tone at his post-decision press conference, warning that upside risks to prices have intensified and inflation surprises are becoming more costly as the underlying trend moves closer to the 2 per cent target the BOJ adopted more than 13 years ago.

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In its latest outlook report, the bank said nominal wages are likely to continue rising at around the current pace, supported by a persistently tight labour market and this year’s favourable wage talks results.

More than 70 per cent of companies planning to dole out pay hikes cited retaining and recruiting workers as a key motivation, according to a Teikoku Databank survey released earlier this year. BLOOMBERG