Japan’s real wages rose 1.0% in March, a third straight monthly gain; total cash earnings rose 2.7% against a 3.2% consensus and prior; BOJ rate decision due June 15-16.

Summary:

• Japan’s inflation-adjusted real wages rose 1.0% year on year in March, a third consecutive month of gains, according to government data released Friday
• Total cash earnings rose 2.7% year on year, missing the consensus estimate of 3.2% and slowing from a revised 3.4% gain in February, per government data
• Overtime pay rose 1.9% year on year in March, per the government release
• Regular pay, or base salaries, grew 3.2% in March, easing from a revised 3.4% rise in February, with full-time worker base salary growth exceeding 3% for a third straight month, according to the data
• Spring wage negotiations resulted in pay increases of above 5% for a third consecutive year, per Reuters
• The consumer inflation rate used to calculate real wages stood at 1.6% in March, below the BOJ’s 2% target for a third consecutive month, with government subsidies helping offset weak yen and elevated oil price pressures, according to Reuters
• Nearly two-thirds of economists polled by Reuters expect the BOJ to raise its benchmark rate to 1.0% by end-June, with the next policy review scheduled for June 15-16

Japan’s real wages rose for a third consecutive month in March, government data showed on Friday, delivering the kind of sustained pay growth the Bank of Japan has identified as a prerequisite for further interest rate increases and sharpening focus on the central bank’s June policy meeting.

Inflation-adjusted wages climbed 1.0% year on year in March, easing from a revised 2.0% gain in February but comfortably above the 0.7% rise recorded in January, which had marked the first real pay increase in 13 months. The sustained sequence of gains reflects a labour market that is translating nominal wage momentum into real purchasing power, a combination the BOJ has said it needs to see before moving again on rates.

Total cash earnings, the broadest measure of nominal wages, rose 2.7% year on year. That came in below both the consensus estimate and the prior reading of 3.2%, with the slowdown partly attributed to a sharp reversal in special payments, which fell 1.5% in March after a revised 7.5% surge in February. Special payments consist primarily of one-time bonus payments and can introduce significant volatility into the monthly headline figure.

Stripping out that volatility, the underlying picture remains solid. Base salaries grew 3.2% in March, just fractionally below February’s revised 3.4%, and full-time workers saw base pay growth exceed 3% for a third straight month. Overtime pay rose 1.9%. The spring wage negotiation round, known as shunto, delivered increases of above 5% for a third consecutive year, providing the structural foundation beneath the monthly data.

Consumer inflation, as measured by the index the labour ministry uses to calculate real wages, stood at 1.6% in March, remaining below the BOJ’s 2% target for a third consecutive month. Government energy subsidies have been suppressing the headline reading by partially offsetting the twin pressures of a weak yen and elevated oil prices driven by the ongoing Iran conflict.

The BOJ’s next rate decision falls on June 15-16, and the central bank has been explicit that it views sustained wage and price growth as the conditions under which further normalisation would be justified. With nearly two-thirds of economists surveyed by Reuters now expecting a rate rise to 1.0% by end-June, Friday’s data will be read as tilting the balance further in that direction. The moderation in the March print from February’s pace gives the BOJ flexibility to proceed carefully, but the three-month trend leaves it with little grounds to argue the conditions for a hike have not been met.