Japan real wages fall again in December, clouding BoJ policy outlook

Japan’s real wages have again fallen, complicating the outlook for the Bank of Japan’s (BoJ) policy. The December data shows a 0.1% decrease year-on-year in real wages, extending a year-long decline. Though nominal wages improved, they lag inflation, resulting in persistently negative purchasing power. Interestingly, while total cash earnings increased by 2.4%, the slower growth in overtime pay indicates weakened private-sector demand. This mixed growth scenario is critical for the BoJ as real wages must positively trend for sustained tightening. The current data is perceived as alleviating pressure for further rate hikes after the December increase of 25 bps. Consequently, market expectations for strengthening the yen are limited unless February's wage discussions yield positive surprises. Hence, without substantial real income growth, the Japanese yen might remain under pressure.