The preliminary wage report for September 2017 showed a moderate acceleration in nominal wages. Basic and overtime wages rose by 0.7% year on year (YoY) in September, accelerating from 0.4% YoY in August. The 0.7% growth in September is the highest since December 2005, although it needs to be confirmed in the revised data release, scheduled on November 22. The higher wage growth for part-timers, 2.3% YoY in terms of hourly wage, is providing a boost to the overall wage growth. Total wage, including bonuses, rose by 0.9% YoY.
Japan – Moderate acceleration in wage growth continues.
Recent data trend
Japan – Moderate acceleration in wage growth continues.
Recent data trend
While the acceleration in the nominal wage growth is welcome, it still falls far short of what would be consistent with 2% inflation target. In the recent weeks, PM Abe has explicitly mentioned 3% rise in basic wage as a target for Japanese companies. His “direction” is a mere political grandstanding, as companies can find a way around it by simply reducing the bonus portion. In our view, the most straightforward and sustainable way for the wage inflation to rise is by heating up the economy so that companies need to provide additional enticements to retain or attract workers. Fortunately for PM Abe, that is exactly what is happening to the Japenese economy. In the past 6 quarters, the Japanese economy has expanded by 2.7% accumulatively, well over its potential GDP growth.
In our view, pieces required for Japan to realize its reflation goal, namely a tight labor market, record low unemployment rate, positive output gap, steady economic growth and easy monetary policy are in place. In our view, it is only a matter of time, maybe a year or so, when we see green shoots of inflation start to appear via an increase in wages.
In this sense, a decline in the part-time ratio is an important factor. The part-time ratio has been steadily on the rise since 1990, the oldest time point for which the data is available. However, there is a sign that the ratio is starting to decline. In our estimate, 1% decline in part-time ratio will lead to 0.5% rise in wage inflation as per-hour equivalent wage for full-timers is twice as high as for part-timers. If the declining trend is to continue, it will provide a steady upward pressure on the wage growth. In September 2017, the part-time ratio was 30.5%, a decline of 0.3% point from a year ago.
Brief overview of “Wage and Hours worked”
Concise and Insightful Analysis on the Japanese Economy
Takuji Okubo is the Managing Director and Chief Economist for Japan Macro Advisors Inc. JMA focuses on the analysis of the Japanese economy, its public policies and politics behind them. ...
