Japan wages halt 17-month decline

Regular wages in Japan have halted a 17-month run of declines, in a sign that the private sector is beginning to heed the prime minister's calls to pay staff more.

Since Shinzo Abe began his campaign to haul the world's third-largest economy out of deflation a year ago, he has stressed that rising base salaries - excluding bonuses and overtime payments - are vital to create a "virtuous circle" that spurs consumption and investment. Yet so-called scheduled cash earnings have been dropping each month, meaning that real incomes have fallen as consumer prices have increased.

In November, however, scheduled earnings per worker were flat from a year earlier, according to government released on Friday. Excluding the effects of the March 2011 earthquake, that matched the best result since April 2008.

The figures suggests that a combination of a rising corporate profits and a tight labour market - the jobless rate was unchanged at 4 per cent in November - is encouraging companies to lift their fixed costs, said Masamichi Adachi, senior economist at JP Morgan in Tokyo.

"This is permanent income, so it has meaningful long-term implications: the lives of workers are getting better", he said.

However, analysts note that the outlook for wage growth remains uncertain, particularly in the context of the impending rise, in April, in Japan's rate of consumption tax from 5 per cent to 8 per cent. Many companies fear the revival this year in consumer spending will not be sustained under the new regime and are therefore reluctant to press ahead with wage hikes.

Keidanren, the largest and most influential business lobby group, seems willing to recommend that its members prepare for the first increase in base salaries since 2008, when they enter Spring negotiations with labour unions.

Mr Abe has been applying pressure on the biggest companies and unions since September, holding a series of meetings to persuade leaders to raise pay.

But three-quarters of total salaries in Japan are paid by small and medium-sized businesses, which are mostly not unionised and where the recovery in profits has not been as strong. In particular, surveys of business sentiment at small non-manufacturers, heavily dependent on household spending, suggest a lot of nervousness over the tax hike.

Another factor dragging on wages is the shift in the composition of Japan's labour force from full-time to part-time workers. The government makes no distinction between the two in its calculations of average earnings per worker, which have fallen almost without interruption since the late 1990s.

And as data from part-timers take longer to calculate, the "encouraging" preliminary wage figures for November could be subject to a downward revision later, said Izumi Devalier, economist at HSBC in Hong Kong.

Other data released on Friday may strengthen policy makers' confidence that Japan is shaking off 15 years of deflation. Consumer prices excluding fresh food rose 1.2 per cent from a year earlier, marking a five-year high. Retail sales also increased more than economists expected, marking a fourth straight rise at 4 per cent from a year earlier.

The job-to-applicant ratio touched 1.00 for the first time since October 2007, meaning that there is one job available per applicant.

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