Japan's wages rise for first time in 22 months in Abe boost

Japan's salaries increased for the first time in almost two years in January as companies boosted pay for part-timers, aiding Prime Minister Shinzo Abe's effort to end 15 years of deflation.

Base pay excluding bonuses and overtime rose 0.1 per cent from a year earlier, the first gain in 22 months, the labour ministry said in Tokyo today. Overall pay fell 0.2 per cent, the first drop in three months.

Consumer spending and industrial output are surging ahead of a sales-tax increase in April, fuelling demand for part-time workers. The question for Abe is how quickly tightening in the labour market spreads to full-time workers, helping to generate sustained wage gains that help households cope with higher taxes and rising inflation.

"The tightening labour market is putting upward pressure on wages," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "We still need to see a higher rate of increase in pay to be assured of growth prospects after the sales-tax hike."

The world's third-biggest economy is gathering momentum as companies and consumers rush to make purchases before the sales tax rises to 8 per cent in April from 5 per cent. Production rose the most in January since June 2011, while retail sales posted the biggest increase since April 2012.

Once the rush is past, the economy is forecast to shrink an annualised 3.9 percent in the three months starting April, slumping after a projected fifth straight quarter of growth, according to a Bloomberg survey.

Virtuous Cycle

Japanese stocks rose, boosted by a decline in the yen. The Topix index was up 0.4 percent at 12:42 p.m. in Tokyo, while the yen was down 0.2 percent at 101.64 per dollar.

Wage gains remain below the rate of inflation, which is cutting into consumers' real spending power, showing Abe has work to do for his Abenomics reflation effort to succeed.

Consumer prices excluding fresh food rose 1.3 percent in January, matching the fastest pace since 2008 and more than halfway to a 2 percent target that Bank of Japan Governor Haruhiko Kuroda is shooting for with unprecedented easing.

"Sluggish wage growth in Japan remains a major stumbling block to higher inflation and the overall success of Abenomics," Marcel Thieliant, an economist at Capital Economics in Singapore, wrote in a research report.

Abe has urged companies to boost wages, saying higher pay is key to bolstering consumption and driving a virtuous cycle of economic growth.

Salary Negotiations

Business and union leaders are in talks on wages for the fiscal year from April, with companies including Lawson Inc., Japan's second-largest convenience-store chain, saying it plans to raise salaries.

As the population ages and shrinks, Japan's labour market could tighten, helping to support wages.

Base wages for full-time workers, who comprise almost 71 percent of Japan's working population, were unchanged, while those of part-time workers climbed 1.1 percent.

The labour ministry's report is based on a survey of companies employing five or more people.