September 6, 2017 / 1:14 AM / a year ago

Sharp drop in Japan's real wages raises fears for consumer spending

TOKYO (Reuters) - Japanese workers’ wages fell in July from a year earlier on a drop in summer bonus payments, casting some doubt on the sustainability of a recent improvement in consumer spending.

Officer workers are pictured through a building window during dusk in Tokyo March 3, 2015. REUTERS/Issei Kato

Wages fell in both nominal and inflation-adjusted real terms, labor ministry data showed on Wednesday.

Wage earners’ nominal cash earnings fell an annual 0.3 percent, reversing from the prior month’s revised 0.4 percent gain and the first decline since May 2016.

Reflecting a 0.6 percent rise in consumer prices, inflation-adjusted real wages fell 0.8 percent, down for the second straight month and the biggest decline since June 2015.

The data is likely to raise questions over the central bank’s assertions that a tightening labor market will eventually lead to higher wages and a resulting increase in consumer spending, which will boost economic activity and inflation.

Some economists say the decline in real wages may weigh on private consumption, which led Japan’s economy to expand at the fastest pace in more than two years in the April-June quarter.

“A sharp drop in real wages is a source of concern, which could deprive households of purchasing power, hurting private consumption as increases in electricity and gas charges push up overall prices in the July-September quarter,” said Yuichiro Nagai, economist at Barclays Securities.

“Even though the pace of declines in real wages will slow from October, nominal wages are unlikely to accelerate until next year’s spring labor negotiations.”

A ministry official said a broader, improving trend was still intact.

“Excluding the decline in special payments, wages remain in moderate increase,” a ministry official in charge of compiling the data told Reuters.

The ministry will issue later this year the average figures for the summer bonuses that were paid in June, July and August, the official added.

Special payments - predominantly but not entirely made up of summer bonuses - fell 2.2 percent in July from a year ago and the first drop since January.

Some manufacturers such as automakers reduced the size of bonus payments as the yen’s gains until late last year weighed on profits.

Regular pay, which determines base wages, was up 0.5 percent in the year to July, rising for a fourth straight month.

Overtime pay, a barometer of strength in corporate activity, rose 0.1 percent year-on-year in July, after a revised 0.1 percent drop in the previous month.

Reporting by Tetsushi Kajimoto; Editing by Eric Meijer

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