TOKYO Japanese real wages increased for the first time in nine months thanks to robust temporary bonuses, but there is still uncertainty as to whether pay hikes will continue to sustain Japan's economic recovery.
In December, household spending fell for a second month as rising prices offset otherwise robust private consumption fuelled by the country's reopening of the COVID- 19 epidemic, according to separate data.
In January, real wages would have fallen again, rising prices have curbed shopping activities since November, and the overall consumption stays lukewarm, said Takeshi Minami, chief economist at Norinchukin Research Institute.
Japan's real wages rose by 0.1 per cent from a year earlier in the year, posting the first gain since March, according to labour ministry data released on Tuesday.
The nominal total cash earnings rose to 4.8 per cent, the fastest growth since January 1997 and slightly above December's inflation rate the ministry uses to calculate wages in real terms.
Minami said that the December figures may remain an outlier because wage growth needs to be achieved through rising base salary rather than relying on bonuses.
The Bank of Japan BOJ is looking at wage trends in the world's third-largest economy as a result of pay growth in the spring labour talks as an essential condition to scale back its massive monetary stimulus.
Japan's household spending fell by 1.3 per cent in December from a year earlier, according to the median estimate for a 0.2 per cent drop and after a 1.2 per cent fall in November.
Spending decreased by 2.1 per cent on a month-on-month basis, disappointing economists that predicted 0.3 per cent growth. It was the biggest monthly decline since February 2022, when it fell by 2.8 per cent.
Japan's private consumption, which occupies more than half of the country's gross domestic product, has underpinned the economy as COVID 19 restrictions have been relaxed.
The government lifted all domestic curbs in March and relaxed border controls in October, boosting a tourism boom supported by a weak yen.
Domestic consumer spending has been hampered by inflation running at a 41 year high.
Major companies have introduced one-off inflation allowances and promised higher pay hikes during the spring labour talks season, including Uniqlo parent Fast Retailing Co Ltd, which announced wage hikes by as much as 40 per cent last month.
But analysts think pay hikes will be limited to big firms and won't be sustained, challenging the rosy picture the government and BOJ officials sketch of higher economic growth accompanied by modest price and wage inflation.
Darren Tay, Japan economist at Capital Economics, said that the labour market will start to soften a bit, which suggests that base pay growth won't accelerate further, as slower inflation and economic growth ahead would make firms reluctant to labour cost increases.
The upshot is that wage growth should settle around 1 per cent this year.