Japan Wages Rise Fastest in Two Years

Japanese workers’ inflation-adjusted real wages rose in May at the fastest pace in two years, reversing the prior month’s drop, government data showed, in an encouraging sign that higher pay could boost consumer spending and inflation.

May’s 1.3% rise in real wages from a year earlier marked the biggest annual gain since July 2016, and followed a revised 0.2% annual drop in April, labor ministry data showed, Nikkei reported.

The data should be encouraging to the Bank of Japan as it struggles to accelerate inflation to its 2% target despite more than five years of massive monetary stimulus.

Nominal cash earnings rose 2.1% on-year in May, the fastest annual gain since June 2003. This followed a revised 0.6% gain in April.

Regular pay, which accounts for the bulk of monthly wages, grew 1.5% in May from a year earlier, the biggest gain since June 1997, while one-off special payments jumped 14.6%.

“Wages remain in a gradually rising trend,” said a ministry official in charge of compiling the data.

Factors such as a drop from a year earlier in the percentage of wage-earners who are part-timers, a rise in special payments and the number of weekdays being one more than in May 2017 contributed to overall wage gains, he added.

Overtime pay, a barometer of strength in corporate activity, rose an annual 1.6% in May versus a revised 1.8% increase in April.

Major Japanese firms, which typically increase wages in unison after spring negotiations with unions, have agreed to hike wages for a fifth year in the fiscal year that started on April 1. The higher wages are expected to kick in from around June.

Meanwhile, Japanese households reduced spending for the fourth straight month in May, government data showed Friday, further clouding the outlook for economic growth in the second quarter.

Spending by households with two or more people fell 3.9% from a year earlier to 281,307 yen ($2,543), the biggest drop since August 2016, according to the ministry of internal affairs and communications.

The ministry maintained its assessment that spending is “showing weakness”. Expenditures fell across a wide range, from eating out and clothing to durables such as TVs and cameras.