September 4, 2015, 20:00 JST

Wage inflation in Japan requires more stirring

In July 2015, the regular (basic and overtime) wage rose by 0.6% year on year, an acceleration from the 0.3% in June. Total wage including the bonus component also rose by 0.6% year on year. 


The moderate acceleration in the regular wage growth is welcome. However, its speed is still disappointingly slow, and it is certainly not consistent with the 2% inflation targeted by the Bank of Japan. 

Are there reasons to be optimistic that the acceleration would continue? At the margin, there are some evident that the labor shortage is leading to higher wage growth. According to a survey by JOBS Research Center, hourly wage for temp workers have been rising at more than 3% per year since late 2013. 


On the other hand, the wage growth among Japanese manufacturing workers are showing a worrying sign of deceleration. Despite the benefit manufacturers are enjoying from weaker yen, the benefit does not seem to trickling down to their employees. 



The lack of momentum in the wage growth is adding a drag to the consumer sentiment in Japan. 


In our view, the condition in the Japanese labor market is tight enough to cause a moderate acceleration in the wage growth. However, we are doubtful that it will be sufficient for the consumer price inflation to reach 2% before the end of 2016.