Yen's Wage-Fueled Gains Fizzle as Rates Hike Looms
The Japanese Yen surged on Tuesday after a strong wage print, but its gains were short-lived as it plummeted by the closing bell. Nominal cash earnings rose 4.7% YoY in July, the fastest since January 1997, and real wages rose 2.4%, the best in about five years.
The Bank of Japan has been waiting for a wage recovery to justify tighter monetary policy, but with this data, that objection is no longer valid. Swaps markets have already priced in a quarter-point rate hike on September 18, and the Yen's payment for the strongest pay figures in 29 years was just 38 pips.
The mechanism behind the wage growth is structural rather than cyclical, driven by employers bidding for a shrinking workforce with rising corporate profits. However, private consumption was flat in the second quarter, and household demand has not followed yet, suggesting that the economy still needs to convert real income gains into spending.