Japan Wage Growth At 21 Year High But Household Spending Drops

Higher summer bonuses for workers in Japan helped the country’s real wage rise to notch a record high in the last 21 years even though the household spending in the economy dropped the fifth straight month in June. Economists are now hoping that the increase in wages would be able to prop up some consumer prices.

Gains in temporary workers’ pay also resulted in the household income of Japan notching up the fastest growth in three years. This has given some hope for the policymakers of the Bank of Japan who have been striving hard to increase the rate of inflation in the economy to the 2 per cent mark.

The gross domestic product (GDP) data for the second quarter of the current year is expected to be announced on Friday and it is expected that the Japanese economy will show a growth of about 1.4 per cent annualized compared to a contraction that was reported for the first quarter of the year.

Compared to the same period a year earlier, there was a drop of 1.2 per cent in household spending in Japan in June according to government data released on Tuesday. June was the fifth straight month where household spending had declined. However, the markets were expecting a larger drop in the figure at 1.6 per cent and the figure for June was much lower compared to the 3.9 per cent in the previous month.

“Household spending continued to fall but we’re seeing some positive signs,” said a government official who briefed reporters on the data. The official added that households would probably be spending the bonuses hat were given to them at the end of June which would help to prop up household spending in July.

In June, there was an increase of 4.4 per cent in Japan’s households’ inflation-adjusted income which is the largest increase in the figure since July 2015. The data showed that this was because of an increase in worker’s pay because of a tightening job market.

And according to a separate set of data, there was an increase of 2.8 per cent in the workers’ real wages in June compared to a year earlier. in May that increase was 1.3 per cent. The June growth was the fastest for a month since January 1997.

The economy of Japan has been plagued by slack private consumption because a slow growth in wage stopped households from spending lavishly which in turn had discouraged companies and firms in increasing prices and had resulted in the inflation rate remaining much lower than the 2 per cent aimed targeted by the Bank of Japan.

The central bank of Japan had brought down its forecast for inflation last week but the rising wages would be encouraging for the BOJ.

(Adapted from MoneyControl.com)

Categories: Economy & Finance, Strategy, Uncategorized

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