Shoppers at a supermarket in Tokyo. Japanese wage growth slowed in August and summer bonuses fell from last year, a discouraging sign for private consumption that should keep policymakers under pressure to offer more stimulus as fears of a recession grow.

Reuters
Tokyo


Japanese wage growth slowed in August and summer bonuses fell from last year, a discouraging sign for private consumption that should keep policymakers under pressure to offer more stimulus as fears of a recession grow.
Inflation-adjusted real wages rose 0.2% year-on-year, slowing from a revised 0.5% gain in July, as nominal wages lag price gains of food and daily necessities, undermining the purchasing power of households.
Special payments – predominantly summer bonuses – rose 0.6%, but those paid during a bonus period between June and August were 3.4% lower than last year, labour ministry officials said.
The data follows a mixed batch of indicators last week including a surprise drop in factory output and bigger-than-expected household spending growth, highlighting an uneven economic recovery from a second quarter contraction.
Wages are seen as crucial for generating a virtuous growth cycle, especially as policymakers hope companies will spend record profits on investments and salaries, and help boost private consumption that accounts for about 60% of the world’s third-biggest economy.
“The data showed household incomes are improving gradually. Wages are not strong enough to drive consumption though,” said Makoto Watanabe, senior economist at BNP Paribas Securities.   “Although corporate profits are rising, companies will grow cautious about boosting salaries and winter bonuses as the economy has stalled and uncertainty grows over the outlook.”
Speculation persists that the Bank of Japan may ease policy further at policy reviews either this week or later this month, especially as the risk of a recession looms large, which if it does happen would further delay a rebound in the economy.
Watanabe said the central bank is likely to stand pat given solid capital spending plans and an improving output gap seen in its tankan survey issued last week.
Some analysts say soft wage data was due in part to change in data sampling adopted earlier this year, which increased weighting of sectors such as retailers and wholesalers who pay relatively lower salaries and bonuses.
Many companies, particularly small firms, have been hesitant to boost wages to avoid marked increases in fixed labour costs. Total cash earnings rose 0.5% year-on-year in August to 272,382 yen ($2,271.36), up for two straight months, the labour ministry data showed yesterday.
Regular pay, which determines base salaries, rose an annual 0.5%, up for a sixth straight month and marking the fastest rise since February 2008. Overtime pay, a barometer of strength in corporate activity, rose an annual 1.5%.
Meanwhile, the Bank of Japan is expected to hold monetary policy steady tomorrow, preferring to save its limited options while hoping that a tightening job market will lift wages and consumption enough to offset the pain from China’s slowdown.
The BoJ is likely to remain under pressure to ease at a more crucial meeting on October 30, when it is expected to cut its long-term economic and price projections due to sluggish exports and renewed oil price falls.
Some investors speculate that Governor Haruhiko Kuroda may ease this week to spring a surprise. But the chance of this happening is slim with many policymakers hesitant to expand an already radical programme, say sources familiar with the BoJ’s thinking. Instead, the BoJ is expected to maintain its pledge to increase base money at an annual pace of ¥80tn ($667bn) tomorrow.
“Kuroda sounds upbeat on the economy, blaming low inflation on oil. The BoJ probably won’t act this week just to surprise markets,” said Izuru Kato, chief economist at Totan Research.
A run of weak data has cast doubt on the BoJ’s scenario that improvements in the economy will allow companies to pass on higher costs to households, helping accelerate inflation toward its 2% target by around September next year. Kuroda stressed last week an uptrend in inflation remains intact, signalling that there was no impending easing.
He has also said the BoJ will look beyond the effect of oil moves on inflation and won’t act unless companies become gloomy enough to slash investment plans and stop raising prices.
But some investors point to various factors that could spur the BoJ into action on October 30, if not this week.  Premier Shinzo Abe will reshuffle his cabinet yesterday in a bid to boost his falling approval ratings, and Kuroda has a record of timing key policy moves with the government.
There are also similarities to last October, when the BoJ stunned markets by easing policy despite giving assurances that Japan was on track to hit its 2% inflation target.
Like last October, slumping oil prices are weighing on inflation. Weak output has heightened the chance Japan may have slipped into recession in July-September.
The BoJ argues that consumption is stronger now, while companies are retaining their upbeat investment plans.  But BoJ policymakers are hardly complacent, with some fretting that growth may not rebound much for the rest of this year as exporters were facing waning demand in Asia.
Firms cut long-term inflation projections in a quarterly survey, contradicting the BoJ’s view its huge money printing is eradicating deflation.
BoJ officials acknowledge the timing for hitting their inflation target would be pushed back on October 30, keeping them under pressure to expand stimulus this month.  “Forgoing easing could hurt the BoJ’s credibility and trigger a yen rise,” said Masaaki Kanno, chief Japan economist at JPMorgan Securities, who expects an easing on October 30.