Japan's Real Wages Rise for Eighth Month in a Row

Japan's real wages have continued their upward trend, rising for the eighth consecutive month in August. The latest government data revealed that inflation-adjusted pay increased by 1.5% year-over-year, although this was slower than the revised 2% gain recorded in July. Average nominal wages, measured as total cash earnings, grew close to 4% to approximately 311,000 yen, down from a revised 4.3% increase the previous month. The slowdown in headline earnings was primarily attributed to a decrease in bonuses.

The consistent rise in real wages supports the case for further interest rate hikes by the Bank of Japan. This view is also shared by new policymaker Ayano Sato, who supports raising interest rates in stages to combat inflation risks. Sato, appointed by Prime Minister Sanae Takaichi, who favors looser monetary policy, highlights a growing awareness among even dovish board members about the need to address inflation.

Meanwhile, the global financial landscape shows mixed signals. A softer US payrolls report and less aggressive hawkish language from key Federal Reserve officials have reduced expectations for an October rate hike. However, the US dollar has shown little interest in unwinding the surge in front-end yields seen through September. Additionally, the Brazilian Real saw a sharp rise following Flávio Bolsonaro’s stronger-than-expected performance at the polls, reflecting its chronic undervaluation since the COVID-19 pandemic.