TOKYO (Reuters) - Japanese wages rebounded in July after plunging the prior month but summer bonus payments rose only modestly, government data showed, suggesting that soft household spending may weigh on the world’s third-largest economy for longer than expected.
Real wages, adjusted for inflation, rose an annual 0.3 percent in July to mark the first increase in 27 months. That offers some relief to policymakers struggling to sustain a virtuous cycle of rising corporate profits leading to a boost in consumption through higher wages.
Total cash earnings also rose 0.6 percent in the year to July to 367,551 yen ($3,055), after plunging in June, which the labour ministry blamed in part on some firms delaying summer bonus payments.
But special payments, consisted mostly of summer bonuses, rose only 0.3 percent in July, disappointing some analysts who had expected a stronger rebound from a plunge in June.
“Bonuses were weaker than expected, suggesting that consumption will lack momentum for the time being,” said Daiki Takahashi, an economist at Dai-ichi Life Research Institute.
“There’s no change in a broad uptrend in wages. But we might have to wait until October-December for consumption to stage a clear rebound,” he said.
Regular pay, which determines base salaries, rose an annual 0.6 percent, up for a fifth straight month and the biggest gain since November 2005.
Japanese companies, particularly small firms, have been reluctant to raise wages substantially to avoid increases in fixed labour costs.
Wage gains were lagging behind price hikes in recent years, causing real wages to slide and eroding households’ purchasing power.
“July data showed a steady increase in regular pay, and summer bonuses appear to be solid. As such, we see nominal wages in an uptrend,” said a labour ministry official.
But Marcel Thieliant, Japan economist at Capital Economics, said summer bonuses had an “anaemic rebound”.
He said the Bank of Japan may have to ease monetary policy further as early as end-October as wage gains were too slow to push up inflation toward its ambitious 2 percent target.
“With the tight labour market failing to create strong wage gains, the BOJ still has more work to do,” Thieliant said.
Overtime pay, a barometer of strength in corporate activity, rose an annual 0.6 percent in July, while bonus payments increased 0.3 percent.
Reporting by Tetsushi Kajimoto; Editing by Richard Borsuk