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Free AccessREPEAT: MNI INSIGHT: BOJ Hopes '17 CPI To Boost '18 Wage Hikes
Repeats Story Initially Transmitted at 07:16 GMT Dec 14/02:16 EST Dec 14
By Hiroshi Inoue
TOKYO (MNI) - Bank of Japan officials are hoping that the rise in the
headline consumer price index this year will result in higher wage increases
during the new wage round next year, MNI understands.
In Japan, companies have been setting base wage hikes based on the most
recent inflation rate, not the inflation outlook. Labor unions, too, have been
demanding pay increases based on the previous year's consumer price gain.
A faster pace of wage increase is the key to making businesses and
households believe that prices will rise steadily every year toward the central
bank's elusive inflation goal of 2%.
The recent gradual rise in labor productivity and consumer prices in
addition to record high corporate profits should prompt at least some major
firms to give higher base wage hikes than last year, BOJ officials argue.
The BOJ's theory is that when labor productivity rises, real wages tend to
rise with a lag as companies face the limit of their ability to deal with
tighter labor supply by making their operations more efficient.
--HIGHER INFLATION FOR HIGHER WAGES
Total wages including regular pay and bonuses rose 1.98% on year in fiscal
2017, with the pace increase slowing slightly from 2.00% in the previous year.
Base wages rose just 0.48% in 2017, compared to 0.31% in 2016, according to
data from the Japanese Trade Union Confederation (Rengo), the national umbrella
organization for labor unions.
The wage hikes in April 2017 were based on weak consumer prices in calendar
2016. Last year, the total consumer price index on average fell 0.1% from a year
before. By contrast, total CPI has risen 0.41% on average in the first 10 months
of this year and could accelerate further in the final two months.
Rengo is demanding an average total wage increase of around 4%, including
automatic seniority increases, in the wage negotiations with management that
begin early next year. This follows the government's call for an average 3% pay
hike next year.
--INCOME GAINS VS. LACKLUSTER SPENDING
In theory, higher income supports higher consumer spending but many
households remain cautious in their buying habits amid concerns about the
sustainability of government social security and future salary levels.
BOJ economists don't expect consumption to rise sharply in the period ahead
because of the nation's low potential growth below 1% and the decline in the
working population. But they expect a rise in income to boost consumer spending
somewhat.
The BOJ's supply-side Consumption Activity Index posted only a small
rebound in October, up a real 0.3% on the month on a seasonally adjusted basis.
It was the first rise since July, after falling 0.1% in September and dropping
0.7% in August.
The level of the October index at 107.7 was unchanged with a slightly
negative bias from the average index for the previous three months.
BOJ officials believe the slow start to the final quarter of 2017 was
caused mainly by a temporary factor in the auto industry. New car sales fell
following suspension of production and shipments by Nissan Motor resulting from
its below-standard vehicle inspection scandal.
They are focused on whether the underlying trend of private consumption
excluding temporary fluctuations will remain resilient.
--WATCHING FY18 RETAIL PRICES
As consumers remain cautious, BOJ economists will also monitor whether
firms are raising prices at the start of the fiscal year in April after having
absorbed higher labor and materials costs for much of this year.
Hit by serious labor shortage, some transportation companies and restaurant
chains have already raised prices, but companies are generally wary of marking
up prices for fear of losing market share.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.