Japan’s Rising Real Wages

Tokyo (Reuters) – Japan’s inflation-adjusted wages rose for two consecutive months in July, thanks to an increase in summertime bonuses, according to government data released on Thursday.

Real wages in the world’s fourth-largest economy grew 0.4% in July, which is slower than June’s 1.1% growth, marking the first positive increase in 27 months, as reported by the labor ministry.

Wages play a crucial role in determining when the Bank of Japan (BOJ) might raise interest rates. BOJ Governor Kazuo Ueda has stated that broad-based increases in pay must accompany rising prices for inflation to sustainably meet the central bank’s 2% target.

The slowdown in real wage growth for July was primarily due to fewer firms paying bonuses compared to June, according to a labor ministry official. Special payments, including bonuses, increased 6.2% in July, following a revised 7.8% growth in June.

Since most firms pay summer bonuses in June and July, the special payments’ contribution to real wage growth is expected to diminish after August, the official noted.

“From August and thereafter, monthly wages (composed of regular and overtime payment) will be a deciding factor” in sustaining growth in real wages, the official added.

Nominal wages, or the average total cash earnings per worker, increased 3.6% to 403,490 yen ($2,785.19), compared to a 4.5% rise in June, when it marked the fastest growth pace since January 1997.

Base pay (regular pay) rose 2.7%, the fastest increase in nearly 32 years, reflecting this spring’s labor-management wage negotiations. Overtime pay, indicative of corporate strength, fell 0.1% in July after a revised 0.9% growth in June.

Japanese firms have agreed to increase monthly pay by an average of 5.10% this year, the largest pay rise in 33 years.

Meanwhile, the consumer price index used to calculate real wages, which includes fresh food prices but excludes owners’ equivalent rent, rose 3.2%, slightly down from a 3.3% increase the previous month.

“Prices are still at a high level, so if prices subside a little more, real wages may continue to be positive,” the official remarked.

($1 = 144.8700 yen)