The basic wage increase for Japanese workers is the largest in 32 years, and if other data supports the view that the positive economic cycle is strengthening, this may provide support for the Bank of Japan to raise interest rates this month.

Figure: Japan's basic wage growth in November is the fastest in 32 years

The Japanese Ministry of Health, Labour and Welfare announced on Thursday (January 9th) that basic wages increased by 2.7% year-on-year in November, pushing up nominal wages by 3%. Economists previously predicted a nominal wage increase of 2.7%. A more stable wage trend indicator observed by the Bank of Japan shows that the wages of full-time workers increased by 2.8% and have remained at 2% or above for 15 months. This indicator avoids sampling issues and does not include bonuses and overtime pay.

After the report was released, the USD/JPY slightly rose; But the Japanese yen is still at a near six-month low, and the US dollar is currently trading around 158.14 against the yen, with a intraday decline of about 0.13%.

Even more disappointing is that actual cash income decreased by 0.3% year-on-year, marking the fourth consecutive month of decline. Part of the reason for the stagnation of actual wage growth is that inflation has exceeded wage growth. After the government stopped subsidizing utility bills and pushed up energy costs, price increases increased in November.

The stable wage trend may reignite speculation that the Bank of Japan will raise interest rates in the near future, including at the upcoming policy decision meeting this month. Since the dovish remarks made by Bank of Japan Governor Kazuo Ueda at the press conference after the December meeting, market participants' views have leaned towards expecting the next policy adjustment to come later.

Yuya Kikkawa, an economist at Meiji Yasuda Institute, said, "Today's data may not necessarily indicate a significant improvement in wage trends. However, if there is additional positive information, such as from branch manager hearings, the Bank of Japan may raise interest rates

The Bank of Japan plans to release its latest regional economic report after the branch manager meeting later on Thursday, and Vice Governor Ryozo Himino will give a speech to local business leaders in Yokohama next week.

Last month, Ueda stated that he hoped to see more data, including signs of sustained wage growth, before taking further tightening measures. As Japan approaches its annual spring wage negotiations, this has drawn attention to the latest wage data.

Bloomberg Economics stated, "The unexpectedly strong growth in labor cash income in November may enhance the Bank of Japan's confidence that wages are driving consumer price trends towards achieving its 2% target level