Japan real wages climb again despite global energy shock from Iran conflict

Japan’s inflation-adjusted wages rose for a third straight month in March, offering some relief to households even as the country faces mounting economic pressure from higher energy costs and slowing business activity linked to the Iran conflict.

The latest government data, released on Friday, is likely to strengthen expectations that the Bank of Japan (BOJ) could raise interest rates again at its next policy meeting in June as wage growth and inflation remain broadly aligned with the central bank’s policy goals.

Real wages, which measure salary growth after accounting for inflation, rose 1 per cent in March from a year earlier. Although slower than February’s revised 2 per cent increase, it marked the third consecutive monthly rise and remained stronger than January’s 0.7 per cent gain.

The wage data comes at a delicate moment for Japan’s economy. A separate private-sector survey released on Friday showed growth in Japan’s dominant services sector slowed sharply in April as businesses grappled with rising fuel costs, weaker demand and uncertainty surrounding the conflict in West Asia.

More from Business

The final S&P Global Japan Services Purchasing Managers’ Index (PMI) fell to 51 in April from 53.4 in March, marking the slowest pace of expansion in 11 months. A reading above 50 indicates growth, while anything below that signals contraction.

The survey suggested the Iran conflict and the resulting spike in oil prices are beginning to weigh on corporate sentiment and consumer demand in the world’s fourth-largest economy.

New business growth slowed to its weakest pace since October last year, while export orders fell for the first time in five months as firms cited higher prices and uncertainty related to the conflict.

Businesses also reported the sharpest increase in input costs in a year, driven by higher fuel, raw material and labour expenses. Many companies responded by passing those costs on to consumers, with selling prices rising at one of the fastest rates since the survey began in 2007.

Despite the slowdown in services activity, Japan’s labour market continued to show resilience.

Average nominal wages, or total cash earnings before adjusting for inflation, rose 2.7 per cent to 317,254 yen ($2,029) in March, following a revised 3.4 per cent increase in February.

Workers’ base salaries, known as regular pay, climbed 3.2 per cent in March, remaining above 3 per cent for a third consecutive month. Overtime pay also increased 1.9 per cent, reflecting continued demand for labour.

The gains follow annual spring wage negotiations that produced pay hikes of more than 5 per cent for a third straight year, reinforcing hopes that Japan may finally be moving away from decades of weak wage growth and low inflation.

The BOJ has repeatedly said sustainable increases in wages and prices are necessary before it can continue normalising monetary policy after years of ultra-low interest rates.

A Reuters poll showed nearly two-thirds of economists expect the central bank to raise its benchmark interest rate to 1.0 per cent by the end of June.

Japan’s inflation, meanwhile, has eased slightly because of government subsidies aimed at offsetting rising energy costs caused by the weak yen and soaring oil prices linked to the Iran conflict.

Consumer inflation used by the labour ministry to calculate real wages stood at 1.6 per cent in March, remaining below the BOJ’s 2 per cent target for a third straight month.

Still, policymakers remain cautious that a prolonged conflict in West Asia could keep energy prices elevated and further squeeze households and businesses in the months ahead.

With inputs from agencies.