Japan May regular pay posts biggest gain in 17 years, real wages inch up

People walk on an overpass in a business district of Tokyo

TOKYO (Reuters) – Japan’s regular pay in May grew at the fastest pace in more than 17 years and real wage growth turned positive for the first time in five months, suggesting the recovery in the world’s third-biggest economy is starting to broaden.

Regular pay, which accounts for the bulk of total pay and determines base salaries, jumped 0.9 percent in May from a year earlier – the biggest rise since March 2000, labor ministry data showed on Friday.

Inflation-adjusted real wages rose an annual 0.1 percent in May, following a flat reading in April.

The rise in real wages, though small, suggests that Japan’s tight labor market is starting to translate into higher pay, and adds to other signs its economic recovery is gaining momentum. This is encouraging news for the Bank of Japan, which hopes higher pay will help boost private consumption and spur inflation toward its 2 percent goal.

“I think wages and inflation are going to rise gradually, given the labor shortage,” said Shuji Tonouchi, chief economist at Mitsubishi UFJ Morgan Stanley Securities.

“The fact that wages are rising offers some support to the BOJ,” Tonouchi said. Companies will eventually have to raise prices to cover the rising labor costs, he added.

Wage earners’ nominal cash earnings rose an annual 0.7 percent in May, the biggest rise in 10 months, the data showed. It followed a 0.5 percent increase in April.

Overtime pay, a barometer of strength in corporate activity, grew 0.7 percent in May from a year earlier, the biggest rise in 13 months.

Special payments, such as bonuses, dropped 1.6 percent in May on year. Special payments are generally small, so even a slight change in the amount can cause big percentage changes.

Japan’s economy expanded an annualised 1.0 percent in the first quarter on robust exports, and business confidence hit a three-year high in the three months to June.

At a rate review on July 19-20, the BOJ is set to keep monetary policy steady and offer a more upbeat assessment of the economy than it did in June to say it is expanding moderately, sources have told Reuters.

However, the central bank will cut its inflation forecasts and its nine-member board will seek to explain why the strength in the economy has yet to translate into firmer prices, sources have also said.

(Reporting by Minami Funakoshi; Editing by Jacqueline Wong & Shri Navaratnam)