Japan Dec real wages rebound on one-off bonuses, household spending falls
7 February, 2023, 11:03 pm
TOKYO (Reuters) -Japanese real wages rose for the first time in nine months thanks to robust temporary bonuses, but uncertainty remains on whether pay hikes will continue to sustain Japan’s economic recovery.
Separate data showed household spending falling for a second month in December, as rising prices offset otherwise robust private consumption fuelled by the country’s reopening from the COVID-19 pandemic.
“Real wages would have likely fallen again in January … Rising prices have clearly curbed shopping activities since November, and the overall consumption stays lukewarm,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
Japan’s real wages rose 0.1% in December from a year earlier, posting the first gain since March, a labour ministry data showed on Tuesday.
Strong winter bonuses pulled the nominal total cash earnings to 4.8%, the fastest growth since January 1997 and slightly above December’s inflation rate the ministry uses to calculate the wages in real terms.
“But the wage growth needs to be achieved though rising base salary, rather than relying on bonuses,” said Minami, suggesting the December figures may remain an outlier.
The market closely watches wage trends in the world’s third-largest economy as a substantial pay growth in the spring labour talks is seen as an essential condition for the Bank of Japan (BOJ) to scale back its massive monetary stimulus.
Japan’s household spending fell 1.3% in December from a year earlier, other data found, versus economists’ median estimate for a 0.2% drop and following a 1.2% fall in November.
On a month-on-month basis, spending decreased 2.1% in December, disappointing economists that forecast 0.3% growth. It marked the biggest monthly decline since the 2.8% decrease in Feb 2022.
Japan’s private consumption, which occupies more than half of the country’s gross domestic product, has underpinned the economy since last year as COVID-19 restrictions eased.
The government lifted all domestic curbs in March and relaxed border controls in October, stimulating a tourism boom supported by a weak yen.
But inflation running at a 41-year-high speed has put a lid on domestic consumer spending.
Major companies have rolled out one-off inflation allowances and promised higher pay hikes at the spring labour talks season, including Uniqlo parent Fast Retailing Co Ltd that last month announced wage hikes by as much as 40%.
But analysts think the pay hikes will remain limited to big firms and will not be sustained, challenging the rosy picture the government and BOJ officials sketch of higher economic growth accompanied by modest price and wage inflation.
“Looking ahead, we expect the labour market to soften a little, which suggests that base pay growth won’t accelerate any further,” said Darren Tay, Japan economist at Capital Economics, adding slowing inflation and economic growth ahead would make firms reluctant to labour cost increases.
“The upshot is that wage growth should settle around 1% this year”.