Japan’s Inflation-Adjusted Wages Increase for Two Consecutive Months in July, Reports Reuters

TOKYO (Reuters) – Japan’s inflation-adjusted wages experienced growth for two consecutive months in July, primarily driven by an increase in summertime bonuses, according to government data released on Thursday.

In the world’s fourth-largest economy, real wages rose by 0.4% in July, reflecting a slower growth rate compared to the 1.1% increase observed in June, when wages turned positive for the first time in 27 months, as reported by the labor ministry.

Wage trends are crucial for determining when the Bank of Japan might consider raising interest rates. BOJ Governor Kazuo Ueda has indicated that widespread increases in salaries are essential for inflation to sustainably reach the central bank’s 2% target.

The dip in real wage growth for July was mainly attributed to fewer companies disbursing bonuses compared to June, as noted by a labor ministry official. Special payments, which include bonuses, rose by 6.2% in July, following a revised increase of 7.8% in June.

Since most companies distribute summer bonuses during June and July, the impact of these special payments on real wage growth is expected to diminish after August, the official cautioned.

"From August onward, regular wages—which consist of baseline and overtime pay—will be the determining factor for sustained growth in real wages," the official stated.

Nominal wages, representing the average total cash earnings per worker, increased by 3.6% to 403,490 yen, down from a 4.5% rise in June, which marked the fastest growth pace since January 1997.

Base pay, or regular salaries, saw a 2.7% increase, the highest in nearly 32 years, influenced by this spring’s labor-management wage negotiations. On the other hand, overtime pay, an indicator of corporate health, decreased by 0.1% in July after a revised increase of 0.9% in June.

Japanese companies agreed to an average monthly pay increase of 5.10% this year—the most significant rise in 33 years.

Additionally, the consumer price index, which authorities reference for calculating real wages—and which incorporates fresh food prices while excluding owners’ equivalent rent—rose by 3.2%, slightly down from a 3.3% increase the previous month.

"The level of prices remains high, so if they decrease slightly, real wages could continue to show positive growth," remarked the official.