March 9, 2018 / 2:44 AM / a year ago

Japan real wages slump, overshadow rebound in household spending

TOKYO (Reuters) - Japan’s household spending rebounded in January but workers’ wages fell at the fastest pace in six months, in a worrying sign that consumption will lose momentum this year and weigh on an economy now enjoying its longest run of growth in 28 years.

A worker cleans a window of a building at a shopping district in Tokyo, Japan March 7, 2018. REUTERS/Kim Kyung-Hoon

A spate of data issued on Friday cast doubt on the Bank of Japan’s optimistic projection that a strengthening recovery will prompt firms to hike wages and boost consumption, helping accelerate inflation to its elusive 2 percent target.

The weakness in wage growth could also reinforce market expectations the BOJ will lag far behind major peers in dialing back its massive stimulus program, analysts say.

“The slowdown in base pay in January suggests that the Bank of Japan won’t be able to tighten monetary policy anytime soon,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“Wages would have to rise at a much faster pace to create major cost pressures for firms.”

Household spending rose 1.9 percent in January from a year earlier, government data showed on Friday, rebounding from a 0.1 percent drop in December.

But the gain was driven mostly by higher costs for necessities, as unusually cold weather forced households to spend more on fuel and medical treatment, the data showed.

Separate data showed workers’ wages after adjustments for inflation fell 0.9 percent in January from a year ago, marking the biggest decline since a 1.1 percent drop in July 2017.

The decline suggests the government will struggle to convince large companies to raise wages by 3 percent or more this year at annual negotiations with labor unions, which are expected to conclude next week.

Consumption has been a soft spot in an otherwise robust recovery, hampering the BOJ’s efforts to achieve its inflation target as firms remain wary of raising prices for fear of scaring away cost-sensitive households.

Service-sector confidence worsened in February for a third straight month to a 10-month low, data showed on Thursday, underscoring the fragility of consumer spending.

The government simplified the survey it asks households to complete for the household spending data, which affected some of January’s results.

Some analysts say household spending data tends to be more volatile and shows a weaker picture of consumption than retail sales figures, because it is compiled from a limited sample of households and is skewed towards an older generation who do not spend much.

Reporting by Leika Kihara; Editing by Eric Meijer

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