The key points
In August, Japan’s headline wage growth came in at 3.8 per cent, below the previous month’s 4.3 per cent rise but slightly above consensus expectations of 3.7 per cent
Real wage growth was positive for the eighth month in a row, bolstering the case for further tightening by the Bank of Japan
The verdict
August’s wage growth data showed the continued normalisation of the Japanese economy. Although headline nominal wage growth slowed slightly, nominal and real wage growth have moved up to levels consistent with positive inflation and economic growth.
We continue to expect the Bank of Japan to raise rates once more this year, taking the policy rate to 1.5 per cent by the end of 2026.
The details
In August, annual headline wage growth in Japan came in at 3.8 per cent, slightly above consensus expectations of a 3.7 per cent rise but below July’s 4.3 per cent figure.
The details of the release were also encouraging. Base pay, a measure that excludes overtime and special payments, rose at an annual rate of 3.8 per cent, flat on the previous month’s rise.
Real wages rose 1.5 per cent annually, decelerating from July’s 2 per cent annual rise but marking the eighth straight month of growth in positive territory.
The data comes a week after the results of the most recent Tankan survey were released. It showed that large Japanese businesses continue to be upbeat about the future, with the sentiment index improving for large manufacturers.
The BoJ raised rates to 1.25 per cent at the September meeting. In the summary of opinions from the meeting, some policymakers noted that the central bank could plausibly accelerate the pace of interest rate increases in the coming months.
We think Wednesday’s wage data poses no obstacle to another rate increase before the end of the year and continue to expect the BoJ to tighten policy again in December.
