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Japanese workers’ nominal wages rose at the fastest pace in nearly three decades, boosted by strong corporate profits and a tight labor market, data that is likely to keep the Bank of Japan on the path of further tightening of monetary policy.
The nominal wage rose 4.7% in July compared to the previous year, after an upward revision of 4% in June, as reported on Tuesday by the Ministry of Labor. This increase, the largest since 1997, far exceeded economists’ forecasts of 3.8%, and marked the sixth consecutive month in which the increase exceeded 3%, the longest streak in 34 years.
Real wages — adjusted for inflation, excluding rents — rose 2.4%, the largest increase in about five years. Base pay also rose 4.1%, while a more stable measure — which excludes bonuses, overtime and sampling distortions — rose 2.7% for full-time workers. The figures, better than expected, reinforce the idea that the Bank of Japan proceed with the widely anticipated rate hike this month. Markets have already largely priced in this move when the board meets next week, with some investors anticipating further tightening of monetary policy after a relatively short interval.
The capacity of Bank of Japan Maintaining this restrictive monetary policy will depend, in part, on whether rising incomes translate into greater domestic demand. For now, there are reasons to doubt. Data last week showed that household spending declined for the eighth consecutive month in July as consumers reduced their discretionary spending. This came after second-quarter gross domestic product data showed private consumption stagnated during that period.
The wage increase is due in part to another successful round of annual wage negotiations, in which workers at union-affiliated companies Rengo They achieved salary increases of more than 5% for the third consecutive year. Separately, the national minimum wage for the current fiscal year rose to an average of 1,177 yen ($7.55) per hour, the second-largest increase on record to date, suggesting that this boost is spreading to a larger number of workers and industries.
Strong corporate earnings have helped companies cope with rising labor costs. Current profits grew for the seventh consecutive quarter in the three months to June, boosted by the manufacturing sector amid rising demand related to artificial intelligence and data centres.
Persistent labor shortages are increasing pressure on employers to raise wages. Most companies reported shortages of full-time staff, particularly in the finance, construction and logistics sectors, according to a survey by Teikoku Databank published last month.
The latest figures largely coincide with the vision of the Bank of Japan on salary evolution. In its most recent report, the central bank projected that nominal wages would continue to grow at a similar pace to the current one, as labor market conditions would remain tight.
Whether a wage increase translates into higher spending will depend in part on whether wage increases can outweigh the increase in the cost of living. The constant increase in everyday expenses has made households more cautious.
According to a report by Teikoku Databankalmost 5,000 food and beverage products were going to experience price increases in September, triple the previous year. The company cited rising crude oil and gasoline prices stemming from the conflict in the Middle East, along with the depreciation of the yen, as some of the factors driving these increases.
