Thursday, November 7, 2024

Japan’s Biggest Base Pay Rise in 31 Years Keeps BOJ on Track

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(Bloomberg) — Japanese workers’ base salaries saw the largest increase in over three decades, supporting the Bank of Japan’s view that the economy remains on the recovery track and backing the case for a rate hike in coming months.

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The pace of gains in base pay quickened to 2.6% year on year in September versus a 2.4% clip in August, the labor ministry reported Thursday. The advance was the strongest in over 31 years.

Nominal cash earnings increased by 2.8%, missing the consensus estimate of 3%, while a more stable measure of wage trends that excludes bonuses and overtime and avoids sampling issues registered 2.9% growth for full-time workers, accelerating a tad from the previous month’s 2.8%.

In a less favorable development, real wages fell for a second straight month even as price gains slowed in September after the government resumed subsidies to reduce household gas and electricity bills.

Taken together, Thursday’s data show that wage hike momentum remains largely steady despite pockets of weakness, sending a positive signal to authorities hoping to see a cycle in which rising wages fuel spending and spur demand-led inflation. While the central bank kept rates on hold at its policy meeting last week, Governor Kazuo Ueda reaffirmed his view that Japan is on track to meet its inflation target, pointing to the possibility of another rate hike further down the road.

“There’s no doubt that wages are improving,” said Atsushi Takeda, chief economist at Itochu Research Institute. “The trend is improving as expected toward another rate hike.”

Nearly half of economists surveyed last month by Bloomberg said they expect the bank to raise the benchmark rate in December, while another 32% predicted the move would come in January.

What Bloomberg Economics Says…

“The data support our view that the BOJ will raise rates further in January, when it will have seen more evidence that the US economy is making a soft landing and will probably be encouraged by signs the domestic wage-price cycle continues to build momentum.”

— Taro Kimura, economist

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Prime Minister Shigeru Ishiba is watching wage trends closely, as he’s made growth in real wages a key issue on his agenda. To achieve that goal, the premier has ordered the compilation of an economic stimulus package that is expected to include measures to mitigate the impact of rising prices on household budgets as well as support for small and medium-sized companies that raise salaries.

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