Japanese workers’ real wages continued to fall in April, even after reflecting some of the gains from a solid win in annual pay negotiations, in a disappointing result for both Prime Minister Fumio Kishida and the Bank of Japan.
Real cash earnings for Japan’s workers dropped 3.0% from a year earlier in April, slipping for the 13th month as overtime pay showed weakness, the labor ministry reported Tuesday. Economists had forecast a 2.0% decrease.
Nominal cash earnings increased 1.0% from the previous year, also weaker than analysts’ expectation of a 1.8% gain, and suggesting the spring wage negotiation results have had limited impact so far. BOJ officials in the past have suggested 3% wage growth is needed for sustainable inflation.
The continued fall in voters’ spending power comes at an awkward time for Kishida as he considers whether to call an early election. Sluggish payrolls won’t help shore up support for Kishida and may make it more difficult to gather momentum toward a strong electoral win.
The weakness in nominal wage gains is also discouraging for the BOJ, which is seeking sustainable inflation backed by pay increases and growth. The latest household spending data Tuesday also suggested price hikes are hitting consumer appetite.
“There’s no way to interpret this but to say the spring wage talk results haven’t been reflected much yet,” said economist Yuichi Kodama at Meiji Yasuda Research Institute. Still, “for real wages to turn positive prices have to come down. I expect price hikes to continue for some time yet although it should peak out in the second half of the fiscal year.”
The lack of strength in wages suggests that the BOJ still needs time before it considers adjusting its accommodative policy. Governor Kazuo Ueda has repeatedly maintained that the bank will continue with large-scale easing to achieve its 2% price goal in a sustainable and stable manner.
He also warned in a speech in mid-May that the cost of making premature policy adjustments is larger than that of waiting.
April’s wage figures are disappointing for both the government and the central bank, given the promising results of this year’s salary negotiations. Japan’s major labor unions and employers reached agreements to raise overall wages by a record 3.66% on average as of June 1, according to Rengo data.
Around 40% of the wages negotiation results are expected to have been reflected in April, with that number rising to more than 80% by July, according to the BOJ’s latest outlook report.
What Bloomberg Economics Says...
“The Bank of Japan is unlikely to be pleased with April’s wage data — pay growth unexpectedly slowed, a sign the boost from the spring wage talks (shunto) is coming in weak. We expect May data to reflect the picture more fully. Even so, the early signal is disappointing.”
— Taro Kimura, economist
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Prices remaining hot is an ongoing concern that may continue to put downward pressure on wages. The BOJ’s key inflation gauge rose 3.4% in April, much faster than the central bank’s target, putting a dent in real pay growth. Food prices will continue to rise through the autumn with rising electricity and labor costs, according to a Teikoku Databank report.
A separate report showed that Japan’s households cut spending in April, an indication that higher prices are sapping consumers’ spending appetite. Household outlays fell 4.4% from a year ago, compared with economists’ view of a 2.4% decline. Spending also fell by 1.3% compared to the previous month, suggesting a weak start to the second quarter.
Resilient consumption is key to Japan’s recovery. The preliminary gross domestic product figure for the first quarter showed that the country’s economy grew more than expected, driven by robust private and business spending. The revised figure, which is due on Thursday, is also expected to confirm a steady recovery in the first quarter after reflecting solid business investment.
“Inflation has been a little stronger than expected. The timing of real wages turning positive may be delayed,” said Kohei Okazaki, a senior economist at Nomura Securities Co. “If wages don’t rise steadily in the second half of the year and beyond, we may have to lower our consumption expectations a little.”
--With assistance from Toru Fujioka.
(Updates with further details from reports, economist comments)
