Japan's wage growth slows in August, keeping pressure on BOJ for more stimulus

Pedestrians cross a road in Tokyo, Japan, on Sept 28, 2015.
Pedestrians cross a road in Tokyo, Japan, on Sept 28, 2015. PHOTO: BLOOMBERG

TOKYO (REUTERS) - Japanese wage growth slowed in August and summer bonuses fell from last year, a discouraging sign for private consumption that should keep policymakers under pressure to offer more stimulus as fears of a recession grow.

Inflation-adjusted real wages rose 0.2 per cent year-on-year, slowing from a revised 0.5 per cent gain in July, as nominal wages lag price gains of food and daily necessities, undermining the purchasing power of households.

Special payments - predominantly summer bonuses - rose 0.6 percent, but those paid during a bonus period between June and August were 3.4 per cent lower than last year, labour ministry officials said.

The data follows a mixed batch of indicators last week including a surprise drop in factory output and bigger-than-expected household spending growth, highlighting an uneven economic recovery from a second quarter contraction.

Wages are seen as crucial for generating a virtuous growth cycle, especially as policymakers hope companies will spend record profits on investments and salaries, and help boost private consumption that accounts for about 60 per cent of the world's third-biggest economy.

"The data showed household incomes are improving gradually. Wages are not strong enough to drive consumption though," said Makoto Watanabe, senior economist at BNP Paribas Securities.

"Although corporate profits are rising, companies will grow cautious about boosting salaries and winter bonuses as the economy has stalled and uncertainty grows over the outlook."

Speculation persists that the Bank of Japan may ease policy further at policy reviews either this week or later this month, especially as the risk of a recession looms large, which if it does happen would further delay a rebound in the economy.

Mr Watanabe said the central bank is likely to stand pat given solid capital spending plans and an improving output gap seen in its tankan survey issued last week.

Some analysts say soft wage data was due in part to change in data sampling adopted earlier this year, which increased weighting of sectors such as retailers and wholesalers who pay relatively lower salaries and bonuses.

Many companies, particularly small firms, have been hesitant to boost wages to avoid marked increases in fixed labour costs.