JPY: Wage growth remains modest – Commerzbank
|The Bank of Japan (BoJ) talks a lot about how it would like to continue raising interest rates, which are still at a very low level in Japan of currently 0.25%. Its hopes are pinned on inflation, which has recently remained above 2%, at least in terms of the overall rate. Accordingly, high wage increases from both the cost and demand side will fuel inflation, at least in the service sector, to such an extent that the 2% will be reached and the key interest rate can be raised further, Commerzbank’s FX analyst Volkmar Baur notes.
BoJ seems willing to raise interest rates again
“Data released this morning shows that this wage development is not yet playing along properly. In nominal terms, the 2.6% increase in wages looks quite reasonable. However, when adjusted for inflation, real wages and thus purchasing power did not increase year-on-year. In the longer term, we see that real wages in recent years have been on a downward trend similar to that seen in the years of zero inflation, so that, at least for the time being, there is little hope of a turnaround in this direction.”
“And looking ahead, there is little reason to believe that wages will soon start to develop a stronger, self-sustaining dynamic. With regard to the separation rate, it can be seen that in recent months significantly fewer Japanese have quit their jobs to look for a better-paid one (Figure 2). While this trend rose continuously from 2020 until the end of last year, it is already falling again this year and is even below 2019 levels.”
“All in all, I see little reason to expect sustained higher inflation in Japan based on these wage growth figures. However, since the Bank of Japan seems willing to raise interest rates again, it should probably do so this year (on December 19) or at its next meeting in January. After that, the window for a rate hike is likely to close. In the short term, the JPY should therefore remain supported, but a renewed weakness is to be expected in the coming year.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.