Japanese wages grows the most since 1997. The 2.6% y/y jump in July was much better than expected, 0.9% and a 17 year high. So, is core inflation beginning to move rapidly higher? Is the Bank of Japan close to closing the door on its monetary stimulus?
Not so fast. Here are 3 reasons why:
- More data needed: Like with every surprising figure, it could be a one time event and could still reverse in the next month. With wages, bonuses could have had an impact.
- Still below real inflation: The 2.6% rise is lower than the 3.3% rise in inflation. Yes, the rise in inflation is mostly related to the sales tax hike announced in April. While the Bank of Japan does not declare victory on deflation because of this tax hike, the reality is that despite this jump, real wages have actually fallen.
- Rise concentrated in overtime: Out of the 2.6% rise, 1.9% is in pay for overtime, while only 0.7% is in regular pay. Even if the rise in regular pay is the highest since 2000, this could still be a one time event.
These three reasons can certainly explain why the yen didn’t strengthen on the data, nor on the deteriorating situation in Ukraine, which normally boosts the safe haven yen.
The strength of the US dollar, which is storming the globe, is probably too much even for the Japanese yen. For the BOJ to change course, we would need persistent, over-the-inflation wage hikes in the Land of the Rising Sun.
For more, see the USDJPT forecast.