Japan’s Wages Fall Again, Adding to Concerns Over Tax Hike

(Bloomberg) -- Japan’s wages dropped for a fifth month, adding to concerns over the resilience of consumer spending as a sales tax increase approaches in October.

Labor cash earnings fell 0.2% in May to extend the longest monthly falling streak since 2013, according to a report by the labor ministry Tuesday. Economists had predicted a drop of 0.6% in a Bloomberg survey.

Key Insights

• The importance of household spending fueled by higher pay is rising as slowing global growth and the U.S.-China trade battle weaken Japan’s exports. Domestic consumption accounts for about 60 percent of Japan’s economy. Wage growth has so far failed to accelerate at the pace expected despite a jobless rate that is well below 3%.
• Falling wages can partly be explained by the higher proportion of lower paid part-time workers. Still, even with a slightly better-than-expected result for May, the weakness of wage gains suggests little impetus for household spending and price gains.
• Lower wages will drag on consumption and there’s plenty of scope for spending weakening further after the sales tax, said Kazuma Maeda, economist at Barclays Securities. "The outlook for consumption is unclear as a rise in the sales tax is undoubtedly going to create the sense of a negative burden."
• Japan’s big companies trimmed their summer bonuses for the first time in two years, according to a business lobby Keidanren last month. Uncertainties over the global economic outlook have cooled optimism among Japan’s biggest manufacturers.
• Some economists are cautious about taking today’s figures at face value as the data has had sampling issues that prompted a recalculation of some GDP figures earlier this year.
• Bank of Japan Governor Haruhiko Kuroda has repeatedly said that wage growth is needed to secure sustainable inflation. The pay falls this year support the need to continue the bank’s stimulus program.

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• Real wages, adjusted for inflation, dropped 1% in May, compared with analysts’ estimate of -1.5%.
• Scheduled working hours dropped 4.6% in May, the most on record for data going back to 1991, according to the labor ministry. Economists said it was still too early to say whether new nationwide workplace rules implemented in April also reduced hours.

--With assistance from Emi Urabe.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson

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