By Kaori Kaneko
TOKYO (Reuters) - Japan's real wages fell for a 21st straight month though at a slower pace, while household spending dropped for a tenth consecutive month, showing that inflation outpaced wage recovery and continued to weigh on consumer spending.
Japan's wage trend, along with inflation, is closely watched, with the Bank of Japan regarding both indicators among the key data to consider in preparation for phasing out its massive stimulus policy.
Prime Minister Fumio Kishida has repeatedly called for business leaders to increase wages at spring labour negotiations to a level higher than last year's to beat inflation.
Japan needs price increases to be propelled by demand and higher pay, instead of the cost-push inflation led by energy prices and a weak yen.
Inflation-adjusted real wages, a barometer of consumer purchasing power, fell 1.9% in December from a year earlier, but the pace of the decline slowed from a revised 2.5% drop in November, data from the labour ministry showed. It was the slowest pace of decline since June 2023.
The consumer inflation rate the government uses to calculate real wages, which includes fresh food prices but excludes rent or equivalent, slowed to a 3.0% gain, the slowest pace of increase since June 2022, reflecting receding inflationary pressure from raw material costs.
Total cash earnings, or nominal pay, climbed 1.0% for the month, after a revised 0.7% gain in November.
"Consumer inflation will likely ease to around 2% as the pace of rises in prices of daily necessities such as food and home appliances is expected to ease later this year," said Koya Miyamae, senior economist at SMBC Nikko Securities.
"Wage recovery is likely to accelerate on the back of factors such as the labour shortage. We believe there is a possibility that real wages will turn positive in the second half of the year."
Japan's biggest business lobby Keidanren and trade unions started annual labour talks earlier this month that may pave the way for the BOJ to exit its decade-long super-loose monetary policy.
Keidanren last month also called for wage hikes this year that exceed the inflation rate, setting the tone for annual wage talks. Labour talks last year brought pay rises of nearly 3.6%, the highest in three decades.
For the full year, over 40-year-high consumer inflation weighed down on Japan's real wages, which dropped 2.5%, the biggest decline since 2014 when the nation raised sales taxes.
Nominal wages grew 1.2% last year, slowed down from a 2.0% increase the previous year.
SUBDUED HOUSEHOLD SPENDING
Japanese household spending in December fell 2.5% from a year earlier, government data showed on Tuesday.
That was slightly worse than the median market forecast for a 2.1% decline.
On a seasonally adjusted, month-on-month basis, spending slipped 0.9%, versus an estimated 0.2% increase.
Spending on household durable goods such as air-conditioners dropped due to warm weather, while expenditure on dining out and auto related goods rose, the data showed.
"Consumption has not much improved and it fell rather significantly," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"This year's spring wage negotiations may show better results than last year, but the key is whether wage recovery will be sustained to support better consumer spending," he added.