Japan’s Higher Base Wages in July Likely Little Relief to BOJ

The first increase in base wages in four months is unlikely to offer much relief to the Bank of Japan as it undertakes a review of policies meant to stoke inflation and growth.

Average monthly base pay, excluding overtime and bonuses, rose 0.4 percent in July from a year earlier to 241,518 yen ($2,326), the labor ministry said Monday. That was the first increase since March.

Overall labor cash earnings rose a stronger-than-expected 1.4% on year in July, due to a rise in one-time bonus payments by the most in four months.

"Wage growth isn’t that bad but it’s not strong enough to boost the inflation rate," said Atsushi Takeda, an economist at Itochu Corp. in Tokyo. 

Takeda said the strengthening this year of the yen and the resulting hit to Japanese corporate earnings will prevent wages from rising enough to lift prices and inflation expectations. "It’s very difficult for the BOJ to achieve its price target," he said.

Higher wages are key to Prime Minister Shinzo Abe’s economic program, which aims at "reflating" Japan’s economy through a cycle of higher corporate profits, rising pay and stronger consumer spending.

The yen’s appreciation this year has hurt exporters’ earnings and created deflationary pressures by lowering the costs of imported goods. Wage growth has been limited.

The BOJ’s critical 2 percent inflation goal remains elusive, more than three years after it launched aggressive monetary easing under Governor Haruhiko Kuroda. The BOJ will next meet Sept. 20-21 to consider whether more monetary stimulus is needed. 

Kuroda said on Monday that the BOJ’s comprehensive review won’t result in any reduction in policy accommodation, as "being called for by some market participants."

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