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Japan Salaries Extend Slide as Inflation Begins to Take Root

Commuters in Tokyo
Commuters stand on the platform of a train station in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Japan’s salaries extended the longest tumble since 2010, increasing pressure on household finances as inflation begins to take root.

Regular wages excluding overtime and bonuses fell 0.4 percent in October from a year earlier, a 17th straight monthly decline, according to labor ministry data released today. Total cash earnings rose 0.1 percent.

The slide in wages threatens living standards as consumers face the prospect of sustained inflation on top of a sales-tax increase in April next year. As a weaker yen helps boost company profits, the focus is turning to salary talks early next year that may determine the success of Prime Minister Shinzo Abe’s bid to reflate the world’s third-largest economy.

“Raising wages is essential for Japan’s sustainable economic recovery,” Hidenori Suezawa, a financial-market and fiscal analyst at SMBC Nikko Securities Inc. in Tokyo, said before the release. “It won’t be easy for manufacturing companies to raise base pay” as they are competing globally, he said, adding that they will probably just increase bonuses.

Prices excluding energy and fresh food rose 0.3 percent in October from a year earlier, the most in 15 years, indicating inflationary pressures are broadening beyond electricity and gas price increases fueled by the yen’s decline.

The Japanese currency has fallen about 16 percent against the dollar this year, weakened by the Bank of Japan’s record easing as it targets 2 percent inflation. The yen was down 0.4 percent at 103.31 against the U.S. currency at 3:38 p.m.

Manufacturing Bonuses

The increase in total cash earnings stemmed from a 5.4 percent climb in overtime payments and a 3.2 percent gain in bonuses, today’s data show. In the manufacturing sector, bonuses jumped 30 percent, while regular wages were unchanged.

The Japanese Trade Union Confederation, or Rengo, plans to demand pay increases of more than 1 percent in the spring labor negotiations, according to a statement in October.

Nomura Holdings Inc., Japan’s biggest brokerage, said Nov. 29 it will increase base pay by an average of 2 percent for about 4,000 staff in the country from April. Lawson Inc., Japan’s second-largest convenience-store chain, also hopes to raise wages by 2 percent to 3 percent in the fiscal year starting April, Chief Executive Officer Takeshi Niinami said in October.

“We can see signs of pay rises in some non-manufacturing industries,” Suezawa said. “That might have a spillover effect into other industries.”

Tightening Market

The number of jobs on offer for every 100 people seeking work rose to 98 in October, the highest since 2007.

While this indicates a tightening of the job market that could put upward pressure on wages, Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo, wrote in an e-mailed note after the report that a shift in the composition of workers from full-time to part-time is subduing wage gains.

The ratio of non-regular employees -- including part-time, temporary and contract workers -- reached a record 36.7 percent in the July-September quarter in labor ministry data back to 1984, increasing from 30.2 percent a decade earlier.

Average monthly earnings of part-timers was about 95,000 yen ($920) in October, compared with about 338,000 yen for regular workers, according to today’s report.

Companies’ profits rose more than 24 percent in the third quarter from a year earlier, the most in almost three years, the Ministry of Finance said yesterday.

Bank of Japan board member Takahide Kiuchi said last week that it’s important to create a virtuous cycle where inflation gradually rises as the economy grows and living standards improve.

Japan’s ruling coalition agreed yesterday to bring forward by a year the abolition of a corporate levy imposed to fund reconstruction after the 2011 earthquake and tsunami. Economy Minister Akira Amari last month urged companies to increase wages in return for this lower tax burden.

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