02.09.201402:33:10UTC+00Wages climb in Japan but still fall under inflation

A report has shown that despite wages in Japan rising by the largest margin in seventeen years, inflation is still a source of pressure for households.

According to the latest data from Japan’s trade ministry, average monthly earnings increased by 2.6% during the month of July compared to the previous year to improve on June’s 1% climb and record the largest advance since 1997. When overtime and bonuses are taken out, the improvement comes out to 0.7%, still the highest since March 2000. When adjusted for July’s inflation rate excluding fresh food products of 3.3%, however, wages were revealed to have shrunk for the thirteen consecutive month by 1.4%.

While the improved average pay is a sign of progress for Prime Minister Shinzo Abe’s economic strategy to create a foundation for a sustainable recovery, the persistent failure of wages to match up with inflation represents the reduction in consumer spending the East Asian country has experienced in the past months.

Economist Tsuyoshi Ueno from Tokyo’s NLI Research Institute claims that the advance is good news for Japan’s economy, but “we shouldn’t jump to the conclusion that consumer spending will pick up. It’s possible households will tighten their purses over concern about the economic outlook, so the question is whether incomes will continue to rise.”

Abe implemented a sales tax hike earlier in April which contributed towards a period of reduced spending and a 6.8% contraction in Japan’s economy during the second quarter. Disappointing data for retail sales and household spending for July suggests that the current quarter may show weakness as well.

Economist Marcel Thieleant from Singapore’s Capital Economics believes that wages are likely to have positive growth but with a slower pace  in the coming months due to base pay growing slower than bonuses.