Japan's nominal wage growth in June hits a four-month high, adding a key factor for the central bank's interest rate hike
Japan's nominal wage growth in June reached a four-month high, rising 2.5% year-on-year. Although this is below the expected 3.1%, both base salaries and regular employee wages have increased, indicating a strong momentum in wage growth. This data has sparked market speculation about the Bank of Japan's future interest rate hikes, with over 40% expecting action at the policy meeting in October. The Governor of the Bank of Japan reiterated the focus on the virtuous cycle of wages and prices, suggesting that another rate hike may occur before the end of the year
According to the Zhitong Finance APP, Japan's nominal wages in June recorded the fastest growth in four months, reflecting the achievements of workers in the annual labor negotiations and sparking market speculation about the possibility of the Bank of Japan raising interest rates in the coming months.
Data released by the Ministry of Health, Labour and Welfare on Wednesday showed that nominal wages in June increased by 2.5% year-on-year, accelerating from the revised 1.4% in the previous month. Although this figure is below the economists' expectation of 3.1%, it is still the largest increase since February. Among them, basic wages rose by 2.1%, while regular employee salaries, which exclude bonuses and overtime pay and better reflect long-term trends, grew by 2.3%. However, real cash income fell by 1.3%, a decline greater than the economists' expectation of 0.7%.
The latest data confirms the strong momentum of wage growth, which may lead the Bank of Japan to continue considering another interest rate hike this year. Last week, the Bank of Japan decided to keep the policy interest rate unchanged at 0.5%, with Governor Kazuo Ueda reiterating that if the economic situation improves, the bank will maintain its path of interest rate hikes and emphasized the importance of confirming a "virtuous cycle" between wages and prices.
Airi Urano, a researcher at Marubeni Research Institute, stated, "As of June, wage growth is progressing steadily as envisioned by the Bank of Japan. The results of the annual wage negotiations are quite strong, and this is gradually reflected in the monthly wage data. Currently, these developments are likely to support the Bank of Japan's interest rate hike decisions."
Following the announcement of the Japan-U.S. trade agreement at the end of last month, those monitoring the Bank of Japan's dynamics have brought forward their predictions for the next interest rate hike, with over 40% expecting action at the October policy meeting. Although the meeting on September 19 is expected to remain unchanged, more than half of the respondents anticipate another rate hike before the end of the year.
Taro Kimura, an economist at Bloomberg Economics, stated, "In terms of policy, the wage data aligns with our prediction of another rate hike at the October meeting—however, the uncertainty in Japan's political situation and the cooling of the U.S. labor market mean this is not a certainty."
Strong wage data reflects the results of this year's annual wage negotiations—Japan's largest labor union federation has secured the largest wage increase for corporate employees in over thirty years. According to the Cabinet Office's monthly economic report, as of mid-June, about 70% of the wage increases had been implemented for employees.
Despite the strong growth in nominal wages, real wages continue to decline as the rate of price increases outpaces wage growth. In June, Japan's core inflation rate reached 3.3%, with soaring food prices being a major driver. According to Teikoku Databank, the number of price hikes by major food and beverage companies in Japan is expected to exceed 1,000 times in August, a 53% increase compared to the same period in 2024.
Against the backdrop of inflation continuing to suppress consumption, the GDP data for the second quarter, to be released on August 15, is expected to show sluggish economic growth. The continued decline in real wages may increase pressure on Prime Minister Shigeru Ishiba, forcing him to take stronger measures to alleviate the cost of living pressures on the public After the ruling coalition faced a historic defeat in last month's Senate elections, it has lost the majority seats in both houses of Congress and must cooperate with the opposition parties to promote legislation. Currently, various parties are negotiating to temporarily reduce the consumption tax.
Looking ahead, policymakers such as the Bank of Japan expect that upward pressure on wages will continue due to a long-term labor shortage. The unemployment rate remained at 2.5% in June, staying below 3% for more than four consecutive years. However, U.S. trade policies pose risks—Washington will impose a 15% tariff on most Japanese imports, a significant increase from last year, which may squeeze corporate profit margins and weaken the ability to raise wages.
Urano stated, "Looking ahead, the downside risks could be quite high. If the impact of Trump's tariffs begins to materialize, winter bonus growth may slow down. This means corporate profits will decline, and companies may find it difficult to offer the same strong wage growth in next year's annual negotiations."
