April 5, 2016, 22:00 JST

Wage growth no longer accelerating

In February 2016, the regular (basic and overtime) wage rose by 0.6% year on year, an acceleration from -0.1% decline in January. Total wage, including bonus rose by 0.9% year on year, up from 0.0% in January.

We do not think it represents a real improvement in the wage growth though. The improvement in February was mostly due to a leap year effect, in our view. We see it when we compare the wage growth for full-time workers with that for part-time workers. Presumably, part time workers wage would rise in a leap year as their pays are tied to actual working hours. On the other hand, full-time workers would receive the same pay in leap year as they do in a non-leap year. That's exactly what we see this month. For full time workers, the year on year growth of regular wages was 0.4%, unchanged from January.

Japanese policy makers, especially those from the Bank of Japan, have been maintaining in the past 3 years that we are about to see an acceleration in wage growth. With an expanding economy, persistent rise in corporate profits and tightening in the labor market, wage growth should eventually follow.

While we sympathize with such trickle down theory, in principle, we no longer think that we would be seeing a wage acceleration in the near term. In our view, the expansionary phase in the economy has ended before the acceleration in the wage growth reached a self-sustaining pace. The Japanese economy has stopped growing in the past 9 months and corporate profits are starting to shrink.

The demand/supply balance in the labor market remains yet tight, but there are a few indicators that suggest the labor market may be starting to cool. For example, the employment DIs within the Economy Watchers' survey have been showing a persistent decline in the past 12 months.

In our view, the trickle down path to reflation in Japan has already been derailed and Japan is slowly reverting back to the vicious cycle of economic stagnation and deflation.