By Satoshi Sugiyama and Chang-Ran Kim
TOKYO- Japan’s inflation-adjusted wages fell in August while household spending also declined, but analysts say underlying trends point to a gradual recovery in pay and consumption and should support the central bank’s plans for additional rate hikes.
Real wages in the world’s fourth-largest economy fell 0.6 percent in August from the same month a year earlier, according to date released by the Ministry of Health, Labor and Welfare on Tuesday. That came after a revised 0.3 percent rise in July.
Real wages had turned up in June for the first time in more than two years as companies bumped up summertime bonuses, though the labor ministry had said the contribution of such special payments to the data would wane from August.
Those payments rose 2.7 percent in August versus a revised 6.6 percent in July and 7.8 percent in June.
At the same time, the August wage data showed base salary marked the biggest rise in nearly 32 years at 3.0 percent, reflecting this spring’s labor-management pay negotiations that led firms to deliver the biggest hike in three decades.
“The real wages falling back to a negative territory was expected,” said Masato Koike, senior economist at Sompo Institute Plus. “In terms of the data itself, it’s not that bad.”
Separate data showed household spending declining 1.9 percent from the year-earlier in August, potentially raising doubts about the strength of private consumption, which accounts for more than half of Japan’s economy.
The fall, however, was smaller than the market estimate for a 2.6 percent drop based on a Reuters poll, and on a seasonally adjusted basis, spending rose 2.0 percent from the previous month, marking the fastest pace of increase in a year.
“Although the household savings rate remains high, consumption will probably recover gradually if the perception of wage increases improves consumer sentiment,” said Yutaro Suzuki, economist at Daiwa Securities.
Sustained wage growth is a prerequisite for the Bank of Japan to raise interest rates again after its first hike in 17 years in March and a follow-up increase in July.
While the central bank said in its quarterly report on Monday that a rise in prices and wages was spreading across Japan, it also noted the concern of small and medium-sized enterprises regarding attendant pressure on profit.
Nominal wages, or the average total cash earnings per worker per month, grew 3.0 percent to 296,588 yen ($1,999.11) versus August last year, compared with an on-year 3.4 percent rise in July. Overtime pay, a barometer of corporate strength, grew 2.6 percent. – Reuters
