Japanese Wages logged unexpected rises which were their strongest since 1997 which will aid the government significantly in its battle against deflation.
In July, Labour Cash Earnings rose by 2.6% from a year earlier which was the complete opposite from the forecasted slowdown of 0.9%. Special payments, or summer bonuses, also saw a whopping rise from the revised 2% figure in June to 7.1% in July however it has been warned that wage growth may then again slow in the coming months. Marcel Theliant from Capital Economics said:
“The summer bonus season ends in August, and bonus payments are set to fall sharply. As a result, the growth rate of overall earnings will mostly be driven by changes in regular pay. With base pay expanding clearly less rapidly than bonuses, wage growth will likely slow again in coming months, but it should stay in positive territory.”
This current set of data suggests that firms are raising wages because of how crucial it is to Japan’s overall economic performance but the country is still struggling to break its near two decade cycle of falling prices which have resulted in stagnant economic growth.
A stimulus plan has been put in place in order to get the economy firing on all cylinders again with the main aims being on the weak currency and encouraging more spending with the overall goal being to see an inflation rise of 2% by next year.
The fiscal deficit has however created a drag effect on the economy with a Sales Tax Hike in April adding to the slowdown as people chose not to spend but despite this, Japanese Prime Minister, Shinzo Abe is still considering a further hike in October next year.
Japan is Asia’s second-largest economy but it shrank by an annualised 6.8% in the second quarter of this year after household spending plummeted.
There are both positives and negatives that can be taken from this news with the government considering furthering their stimulus package in order to encourage further foreign investment in the country. The wage increases will undoubtedly put off those looking for cheap labour but it may well encourage further spending which could see many businesses trying to encourage consumers to part with their cash and should someone be able to successfully do this they could make great waves in a very important Asian market that has ties with China and South Korea as well as other local markets and those on the global stage.
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