TOKYO (BLOOMBERG) - Japan's companies cut bonus payments in July, leading to a surprise drop in total pay for workers. While this was the first fall in 14 months, previous gains have been weak and well below the level needed to generate stronger inflation.
Total cash earnings, including overtime and bonuses, declined 0.3 per cent from a year ago. Adjusted for inflation, total cash earnings slipped 0.8 per cent.
Bonuses and allowances dropped 2.2 per cent. Scheduled monthly base wages per full-time worker rose 0.3 per cent in July from a year ago, labor ministry data showed on Wednesday (Sept 6). Hourly pay per part-time worker grew 2.9 per cent.
Japan's labor market is the tightest it has been in decades, but that hasn't translated into sustained wage pressures. Base wages for full-time workers haven't risen more than 1 per cent in any month over the last two years, and while part-time workers are seeing better per-hour pay they are working fewer hours.
A drop in summer bonuses weighed on overall cash earnings in July and winter bonuses are likely to be lower than last year, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co in Tokyo. "Scheduled pay, which has a bigger impact on consumer spending, is rising only slowly and real wages will probably keep dropping for a while. That means consumer spending will struggle."
"My conclusion is the pace of wage gains remains weak, weighing on consumer spending," said Masaki Kuwahara, senior economist at Nomura Securities Co. Weak summer bonuses were expected because they are based on corporate earnings a year ago, when the yen was rising, he said.