Wages in Japan rose again in May, with the increase significantly outpacing inflation, a development expected to further strengthen the case for the Bank of Japan to raise interest rates.
Data released by the Ministry of Health, Labour and Welfare on Tuesday showed nominal wages rose 3.2% year-on-year in May, following a revised 3.6% increase in April. This figure was below economists' expectations but marks the fourth consecutive month that wage growth has reached at least 3%, the longest such streak since 1992.
Base pay for the month grew by 3%. A more stable indicator that excludes bonuses and overtime pay and is less susceptible to sampling bias showed wages for full-time employees rose by 2.4%. After adjusting for inflation, cash earnings increased by 1.4%, representing the fifth consecutive month of growth and the longest streak since 2021.
Employers' resolve to raise pay remains firm, even as Middle East conflicts have disrupted supply chains and fueled inflation. This will reinforce the Bank of Japan's view that the virtuous wage-price cycle remains intact, allowing it to continue advancing monetary policy normalization.
Markets currently price in an approximately 82% probability of another rate hike by the Bank of Japan before the end of December, with recent data strengthening the argument for earlier action. The central bank's next policy meeting is scheduled for the end of this month.
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