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(Bloomberg) — Japanese nominal wages rose at the fastest pace in nearly three decades, supporting the Bank of Japan’s latest rate hike decision and keeping it on track for further tightening steps.
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Nominal cash earnings for workers climbed 4.8% in December from a year earlier, up from a revised 3.9% gain in November, the labor ministry said Wednesday. The reading exceeded economists’ consensus forecast and marked the largest jump since 1997. The strong gain was driven by a jump in bonuses.
The yen strengthened as much as 0.8% to 153.17 versus the dollar, leading gains among Group-of-10 currencies. Yields on Japanese government debt rose.
“Bonds were sold off heavily due to the wage data, as the market is speculating that the BOJ rate hikes will continue or be brought forward,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
In another positive development for pay, real wages grew for a second consecutive month in December. Economists had expected real wages to fall amid accelerating inflation. Overall inflation in the country has been above 2% for nearly three years, hitting 3.6% in December.
Wage trends continue to face market scrutiny even after the BOJ’s latest decision to raise borrowing costs, as they could influence the timeline of future rate hikes. Last month the central bank implemented its third rate increase in less than a year, after evaluating wage growth and the initial market reaction to Donald Trump’s return to the White House.
“Wage trends will of course remain a key indicator for the BOJ’s policy decisions,” said Masato Koike, senior economist at Sompo Institute Plus. “The trend so far looks on track, but it’s unlikely that base pay will see further gains until the spring negotiations,” he said, adding that the bank’s focus is on how the spring pay talks unfold.
Swaps market pricing for the likelihood of a rate hike by the BOJ’s July meeting increased to about 78% on Wednesday.
At the post-decision press conference in January, Governor Kazuo Ueda signaled the possibility of additional rate hikes, noting that the country’s interest rates still remain below the neutral level. Ueda emphasized the need to monitor economic conditions before making the next move, reminding the market of the importance of keeping an eye on pay developments.
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