Japan’s Real Wages Decline Again After Summer Bonus Increase, Spending Drops – Reuters

By Satoshi Sugiyama and Chang-Ran Kim

TOKYO – Japan’s inflation-adjusted wages experienced a decline in August, following two months of increases during the summer bonus season. Additionally, household spending saw a decrease, as reported on Tuesday, reducing the likelihood of the central bank raising interest rates in the near future.

According to the Ministry of Health, Labour and Welfare, real wages in Japan, the world’s fourth-largest economy, dropped by 0.6% in August compared to the same month a year prior, reversing a revised 0.3% increase in July.

In separate findings, household spending fell by 1.9% year-on-year in August, raising concerns about the robustness of private consumption, which represents more than half of the nation’s economy. However, this decline was less severe than the market’s forecast of a 2.6% drop based on a recent poll. On a seasonally adjusted basis, spending increased by 2.0% from the previous month, marking the fastest growth in a year.

Real wages had risen in June for the first time in over two years due to increased summer bonuses from companies, though the labor ministry indicated that the impact of these special payments would diminish starting in August. Payments rose by 2.7% in August compared to a revised 6.6% increase in July and 7.8% in June.

For the Bank of Japan to consider raising interest rates again, sustained wage growth is essential following its first hike in 17 years in March and a subsequent increase in July. The central bank mentioned in its quarterly report that wage and price increases were becoming more widespread across Japan, although it acknowledged concerns among small and medium-sized enterprises regarding pressure on profits.

Nominal wages, which reflect the average total cash earnings per worker per month, rose by 3.0% to 296,588 yen compared to August of the previous year, down from a 3.4% increase in July. Regular pay also saw a rise of 3.0%, while overtime pay, an indicator of corporate health, increased by 2.6%.

The consumer price index utilized to calculate real wages, which includes fresh food prices but excludes owners’ equivalent rent, surged by 3.5% in August, representing the highest increase since October of the previous year.