Japan's Regular Wages Rise at Fastest Pace in Two Decades

(Bloomberg) -- Japan’s wages rose in March at the fastest pace in years, a sign that the labor market may finally be fueling the kind of pay rises the Bank of Japan needs to push inflation higher.

Stronger wage gains have been a missing link in BOJ Governor Haruhiko Kuroda’s quest to generate 2 percent inflation. Despite the tightest labor market in decades, and years of unprecedented monetary stimulus, inflation is only about halfway to the target.


  • Regular wages rose 1.3 percent in March from a year earlier, the most since July 1997.
  • Overall cash earnings, which include overtime and bonuses, increased 2.1 percent from a year earlier, the biggest jump since June 2003 (estimate 1%).
  • Real wages, or wages adjusted for inflation, rose 0.8 percent from a year earlier, the most since September 2016 (estimate -0.5%).

The gains in regular wages in March were partly the result of companies hiring more permanent, full-time workers, according to the labor ministry. Those employees generally receive higher pay. An increase in bonus payments during the month also helped lift overall cash earnings, the ministry said.

The BOJ has been waiting for the kind of pay rises seen in March, but it’s hard to believe the increase of 2.1 percent in overall pay is sustainable, said Takeshi Minami, chief economist at Norinchukin Research Institute. "But I expect it to be above 1 percent for a while."

Minami also cited the slow shift to permanent employees as a factor.

Many Japanese companies have struggled to find employees as the jobless rate has fallen, to 2.5 percent in March, near the lowest since 1993. This has pressured businesses to raise pay and offer more permanent positions to secure the workers they need.

Yet wage gains and inflation have so far been sluggish. In March, nationwide prices excluding fresh food rose 0.9 percent, just under halfway to the BOJ’s target.

‘Half Step’

Masamichi Adachi, senior economist at JPMorgan Securities Japan, described the March wage data as a "half step" forward for the BOJ. Wages and overall labor costs are rising, which is positive for the central bank’s inflation goal, Adachi said, and this will continue in 2018.

"The issue is how fast it will accelerate," he said, referring to employee pay.

One problem for the BOJ is that inflation, though still modest, is already eating into workers’ pay increases, as seen in the 0.8 percent gain in real wages in March. The central bank also points to businesses cutting hours and investing in labor-saving technology as reasons for slow progress on inflation.

The wage data released on Wednesday will be revised on May 23.

©2018 Bloomberg L.P.