Japan’s wage growth outlook negative despite an acceleration in February

Japan’s wage growth accelerated to 0.9% y/y in February, the most rapid pace witnessed in more than 15 months. Base wage rose 0.6%, the most solid growth in more than 10 years. However, wage data is usually revised downward by the labor ministry in the final reports.

Wage growth figure for January was downwardly revised to 0% from the initial estimate of 0.4%. According to a DBS Bank report, the outlook is negative. According to the first quarter Tankan surveys, business confidence in Japan has worsened further, noted DBS Bank.

Declining expectations and sentiment for earnings outlook is expected to discourage firms from raising wages, added DBS Bank. In the spring labor negotiations, many major manufacturing companies raised vase pays by just half of previous year’s amounts. Meanwhile, decision to freeze pays was taken by leading financial institutions. The monthly wage data shows that certain signs of weakening are expected to come out in the second quarter, according to DBS Bank.

If wage growth is slowed, it will hurt the outlook of a sustained rebound in domestic demand and acceleration in underlying inflation. This sets off the worries that the economic recovery cycle will discontinue and Abenomics will lose traction, added DBS Bank. The central bank will be pressurized further to think about additional easing in H1 2016, said DBS Bank.