Proving once again that you can't print your way to general economic prosperity, Abenomics took another shot to the chest last night as Japan's base wages failed to rise month-over-month for the 24th month in a row (the longest streak in history). Even after all the promises and hope of the spring wage negotiations, Abe's 'plan' to guilt employers into raising wages is not working; which is especialy problematic given the surge in inflation (as the 'real' wage slumped 3.1% in April) As Goldman warns, we caution against excessive expectations for sustained wage growth.
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Via Goldman Sachs,
Basic wages still falling even after spring wage negotiations; total wages lifted by special wages/overtime: April total cash wages rose 0.9% yoy, accelerating from March (+0.7%). Special wages increased 20.5% yoy (March: +10.3%), pushing up the total by 0.6 pp. Overtime pay has underpinned wages as a whole recently but is beginning to peak out, although it still rose 5.1% in April (March: +5.8%) and contributed +0.4pp to overall wage growth.
Meanwhile, basic wages (80% of the total) remained on a yoy downtrend (April: -0.2%; March: -0.3%). While wage hikes resulting from the spring negotiations (shunto) will be largely reflected in basic wages, the April figure indicates no major change in basic wages since the start of the new fiscal year. Next month’s May data should shed more light, as many companies will include the shunto wage hike portion in salaries from May.
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Part-time employees rise, regular employees show signs of peaking: Employee numbers have been growing stably, with the April figure coming in at +1.3% yoy (March: +1.2%), consistent with other employment-related economic indicators. The breakdown shows growth in part-time workers coming in at +2.8% yoy in April, accelerating from +2.1% in March, but growth in regular employees slowing to +0.6% (March: +0.9%), pointing to signs of a peak.
Focus on basic wages and overtime from May: It comes as a surprise that basic wages contracted in the first month of the new fiscal year despite the shunto wage hikes. Since many companies pay new-FY wages starting around May or June, we focus on the basic wage trend from next month...
Considering that there has been no change in basic wages so far, employment growth is skewed toward part-timers, and also continued increase in overtime wages, we think companies remain cautious on expanding fixed cost, i.e. full-time employees and basic wages, and are responding to cyclical activity growth by taking on more part-timers or increasing overtime hours. We caution against excessive expectations for sustained wage growth.