HEADLINE wage growth for Japanese workers slowed sharply in November, an unwelcome development for the Bank of Japan (BOJ) as it seeks evidence of a virtuous circle linking pay hikes to price increases as a prerequisite for normalising monetary policy. 

Nominal cash earnings for workers rose 0.2 per cent from the previous year, decelerating sharply from a 1.5 per cent increase in October, the labour ministry said on Wednesday (Jan 10). Economists had expected the pace to hold steady. Real wages declined 3 per cent, much deeper than the consensus call for a 2 per cent drop.

Still, a key subset of the figures that avoids some sampling issues showed signs of resilience.

BOJ governor Kazuo Ueda is monitoring wage trends for signs that there will be enough momentum for the bank to achieve its goal of 2 per cent inflation on a sustainable basis. While Wednesday’s figures will back the rationale for keeping policy settings ultra-easy this month, they are not likely to deter economists from predicting a rate hike in coming months.

The BOJ is already looking ahead to the state of play in annual wage negotiations, which are expected to culminate in March.

Japan’s largest labour union federation is urging companies to raise wages by at least 5 per cent in principle. Ueda told NHK late last month that it would be possible for authorities to make some decisions even if they do not have the full results of pay discussions from smaller firms, which may not be available until summer. 

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That remark spurred speculation that the likely timing of a BOJ hike would be the April monetary policy meeting. BOJ authorities next convene in two weeks at a gathering that concludes on Jan 23, where, in addition to setting policy, they will release updated outlooks for prices and growth.

“The current situation is that wages haven’t caught up with prices,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

“Given the strong impacts of the base effect from the previous year and the weakness in some sectors, I don’t believe we are in a virtuous circle yet.” She added that she still foresees an exit from negative rates in April at the earliest.

Wednesday’s report included data that avoids sampling issues and strips out bonus and overtime payments. It indicated that the underlying trend for compensation is more or less holding up. Growth in regular workers’ core pay slowed by 0.1 percentage point to 1.9 per cent. Ueda has signalled in the past that he is watching that data point.

Prime Minister Fumio Kishida amplified his call for robust wage increases in a series of speaking engagements at business association events to mark the new year. The draft budget for the fiscal year from April includes a fund of one trillion yen (S$9.2 billion) to spur pay hikes and mitigate the impact of inflation.

Several firms have already signalled their plans to implement ambitious wage hikes as continuing tightness in the labour market forces them to compete for staff. 

Nomura Holdings announced a 16 per cent pay increase for younger employees in its brokerage subsidiary, and supermarket and convenience store operator Aeon plans to lift hourly wages for 400,000 part-time workers by 7 per cent by summer, according to Nikkei.

Tokyo Electron will raise its starting salary by about 40 per cent on average, Nikkei reported. BLOOMBERG