Japan’s nominal base salary experienced its most rapid growth in 28 years in May, according to government data cited by Reuters released on Friday, intensifying the discussion surrounding the timing of the central bank’s withdrawal from its ultra-loose monetary stimulus.
The global financial markets have been closely monitoring Japan’s wage data as Bank of Japan Governor Kazuo Ueda considers pay growth a crucial factor in deliberations regarding a policy shift. Data from the labor ministry revealed that regular wages surged by 1.8 per cent in May compared to the previous year, marking the largest increase since February 1995. The substantial growth in base pay also contributed to a 2.5 per cent rise in workers’ total cash earnings, or nominal wages, in May, following a revised 0.8 per cent increase recorded in April.
Reuters cited Hisashi Yamada, an economist, and professor at Hosei University, who stated that if inflation stabilizes around 2 per cent and nominal wages accelerate from 3 per cent to 3.5 per cent, the conditions could be set for the BOJ to dismantle the monetary easing framework from the Kuroda era. Meanwhile, Rengo, Japan’s largest labor organization, announced on Wednesday that major companies had agreed to average pay hikes of 3.58 per cent this year, the highest since 1993 when it stood at 3.9 per cent.
A labour ministry official noted that the outcome of the ‘shunto’ spring labor negotiations would increasingly manifest in the government’s wage statistics over the next few months.
However, despite the significant nominal wage growth, real wages in Japan contracted by 1.2 per cent in May, marking the 14th consecutive month of year-on-year declines. Relentless consumer inflation outpaced nominal pay growth, putting pressure on households’ purchasing power. Analysts predict that real wages will continue to decline throughout 2023.
Additional data released on Friday revealed that Japanese household spending declined by 4.0 per cent in May compared to the previous year, marking the third consecutive month of decline and exceeding the market’s median forecast of a 2.4 per cent drop. The data indicated decreased spending across various categories, including food, clothing, and transportation.
In an interview with the Nikkei newspaper published on Friday, BOJ’s Deputy Governor Shinichi Uchida emphasised the central bank’s need to continue supporting the economy through accommodative policies.
Reuters cited Taro Saito, an executive research fellow at NLI Research Institute, who predicted that next year’s spring labor negotiations would likely result in wage growth similar to this year’s due to prolonged price inflation and labor shortages. However, he cautioned that the uncertain global economic conditions pose the greatest risk to this scenario.
(With Inputs from Reuters)
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