Minimum wage rises to record high in Japan

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Basic wages for regular workers in Japan have risen at a record pace, giving Prime Minister Shigeru Ishiba an advantage.

The basic wage for full-time workers in Japan increased by a record 2.9% in August from a year earlier, compared with a 2.6% increase in July, the Labor Ministry reported on Tuesday (October 8).

“The overall wage trend is not too bad,” said Takayuki Toji, senior economist at Japan Post Insurance.

Muc luong co ban cho nguoi lao dong tai Nhat Ban ghi nhan muc tang dot bien. Anh: Bo Lao dong Nhat Ban.
The basic salary for workers in Japan recorded a sudden increase. Photo: Japan's Ministry of Labor.

Wages are one of the most closely watched indicators as the government and the Bank of Japan (BOJ) seek to achieve a virtuous cycle of rising wages that spur spending and create demand-led inflation, a mechanism that would allow authorities to declare an end to deflation once and for all.

“I think the economic recovery trend will continue, but it is still unclear whether a positive wage-price cycle has really started,” said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute.

In a separate report from Japan’s Ministry of Home Affairs, Japanese households cut spending by 1.9 percent in August from a year earlier, indicating that households continued to tighten their budgets after more than two years of price increases that met or exceeded the BOJ’s 2 percent target. Households cut spending on housing, transportation and education, while spending on food, clothing and furniture increased.

There are now expectations that the wage data will help the BOJ continue its rate hike path in the near term. However, the spending data also provides a less convincing case for a rate hike, as wages do not really boost consumption in real terms in the face of strong inflation.

Analysts said the smaller-than-expected year-on-year decline in household spending and the increase in spending from July, the biggest monthly gain in a year, could be a sign that the trend is improving. Toji said the spending data could point to a fairly stable level of gross domestic product (GDP) for the July-September period.

"I think the BOJ may raise interest rates after December by examining data including consumption and GDP," Toji said.

In his inaugural address last week, Prime Minister Ishiba declared that his top economic priority was to fight deflation and put the country on a path of stable growth. He also stressed the importance of wage growth outpacing inflation to promote a wage-growth-based economy.

To protect households from the impact of rising prices and support growth, Prime Minister Ishiba has ordered the cabinet to draw up a package of economic measures along with a supplementary budget. These steps will include cash handouts to low-income households and local economies.

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