Separate data released on Friday revealed that, despite major corporations offering their largest pay rises in the last three decades, consumers’ expenditure in Japan fell for the sixth consecutive month in August. According to the Ministry of Health, Labor, and Welfare, inflation-adjusted real wages, a measure of consumer purchasing power, decreased by 2.5% from a year earlier following a revised 2.7% drop the month before.
As the Bank of Japan (BOJ) emphasizes sustainable increases in salaries as a prerequisite for deciding when and how to take down its ultra-loose monetary stimulus, international financial markets are keenly monitoring pay developments in the third largest economy in the world.
Masato Koike, an economist at Sompo Institute Plus says, “It still remains far from the level at which the Bank of Japan can be confident of a virtuous cycle between prices and wages.”
The official consumer inflation rate, which includes fresh food costs but excludes rent in determining real wages, fell to 3.7%, the lowest in over 11 months. However, nominal wage growth in August was 1.1%, weaker than in June and May and unchanged from July after a downward revision.
A new economic stimulus package to help households cope with the rising expenses and also improve wages will be funded by an additional budget that will be put forth to this month’s extraordinary parliamentary session, according to Prime Minister Fumio Kishida’s announcement last week.
The final month of the summer bonus season, August, saw a 5.4% year-over-year decline in special payments, marking it as the largest decline since January 2021. An official from the labor ministry claimed that the reduction was caused by more companies making bonus payments earlier this year, as seen by an upsurge of 0.6% in July and a rise of 3.5% in June.
The report indicated that base salary growth increased 1.6% year over year in August, up from a revised 1.4% gain in the preceding month. Overtime pay, an indicator of business activity rose by 1% annually in August after increasing by a revised 0.0% in July.
According to a government official, expenditure on a variety of things, including food and test-prep school expenses declined in August while spending on transportation, culture, and entertainment services went up.
Sompo’s Koike said, “Major companies agreed to average pay hikes of 3.58% this year, and strong corporate earnings and labor shortages will help boost wages looking ahead. As import prices settle down, the growth rate of consumer inflation is also expected to gradually narrow, and real wages will also recover. Consumption will move toward recovery as wages rise and economic activity normalizes.”
- Published By Team Genuine Reporter