Japan’s Nov real wages fall most in 8 years, defying BOJ objective

Japan reported on Friday its worst real-wage decline in more than eight years, with November data highlighting the elusiveness of the central bank’s objective of reinforcing inflation and the economy with sustained rises in workers’ pay.

The 3.8 per cent annual fall in inflation-adjusted wages heightens the urgency of Prime Minister Fumio Kishida’s push for upcoming talks between labour and management to deliver wage hikes that outpace rises in living costs.

Japan wants inflation that is led by demand and higher pay, rather than the current cost-push inflation driven by high commodity prices and a weak yen.

Bank of Japan Governor Haruhiko Kuroda has also repeatedly stressed the need for price rises to be accompanied by wage growth.

While looking for that, the central bank is keeping its policy ultra-loose.

“Regardless of who replaces Kuroda when his term ends in April, wage growth will hold the key to the outlook for monetary policy,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Adding to the challenge, Friday’s data showed that annual growth in wages before adjusting for inflation had slowed markedly in November, reflecting slow recovery from COVID-induced doldrums.

Kishida this week urged firms to implement wage hikes that exceed the rate of inflation to prevent stagflation.

With record profits, Japanese firms have piled up internal cash and other reserves that by September were worth 500 trillion yen ($3.7 trillion). In the wage talks, due to end in March, the companies are expected to offer pay rises of around 2.7 per cent, versus the previous year’s 2.07 per cent.

Still, that would fall far short of the 5 per cent demanded by the Japanese Trade Union Confederation, known as Rengo, and would not match core consumer inflation, which is at a more than four-decade high.

Sluggish wage recovery remains a pressing issue for Japan as surging living costs hurt households and weigh on consumer spending in the economy, the world’s third largest.

November was the eighth straight month to show an annual fall in real wages, which were undercut by inflation. The month’s 3.8% fall was the greatest since a 4.1 per cent drop seen in May 2014, when real wages had been affected by rises in sales tax, the labour ministry said.

The consumer price index that the ministry uses to calculate real wages, one that includes fresh food but not the rent value of owner-occupied homes, was 4.5 per cent higher in November than a year earlier, the quickest pace of increase since June 1981.

Nominal total cash earnings were up an annual 0.5 per cent in November, but the pace of growth slowed from a revised 1.4 per cent gain seen in October, led by falls in special payments such as bonuses.

Meanwhile Japan’s 10-year government bond yield rose to hit the upper limit of the central bank’s policy band on Friday, after the finance ministry raised the coupon rate on the notes of the same maturity auctioned in the previous session.

The yield on 10-year JGBs rose to 0.500 per cent, its highest since July 2015 and the top of the allowance band around the benchmark yield target, which was widened to 0.5 per cent from 0.25 per cent last month in the central bank’s surprise policy tweak.

On Thursday, Japan’s Ministry of Finance raised the coupon rate on the 10-year Japanese government bonds (JGBs) to 0.5 per cent from the previous 0.2 per cent, the highest level since December 2014.

Yields on other tenors fell as the Bank of Japan (BOJ) conducted emergency bond buying operations for notes maturing five to 10 years, in addition to its scheduled operations for notes maturing between one to 25 years.

The BOJ later announced to hold a two-year pooled collateral operation for a third straight session, supplying financial institutions with cash amounting to 2 trillion yen ($14.91 billion) at a 0 per cent interest, a move aimed at encouraging investors to buy 2-year government notes.

The two-year JGB yield, which turned positive for the first time in 7 years last month, fell 0.5 basis point to 0.010 per cent.

“The BOJ said it widened the band for 10-year yield in order to restore market functions, but looking at the series of operations, its motive could have been something else,” said Masayuki Koguchi, general manager - fixed income investment division, Mitsubishi UFJ Kokusai Asset Management. The 20-year JGB yield, which hit the eight-year high of 1.350 per cent this week, fell 1.5 basis points (bps).

The 30-year JGB yield fell 1.5 bps to 1.600 per cent. The 40-year JGB yield also fell 1.5 bps to 1.870 per cent. The five-year yield fell 1 bp to 0.195 per cent. Benchmark 10-year JGB futures rose 0.22 yen to 145.88, with a trading volume of 12,293 lots.