JPY: Real wage growth remains negative – Commerzbank

This morning, data on wage growth in Japan was published, once again underscoring our scepticism that the Bank of Japan (BoJ) will raise interest rates again anytime soon. The BoJ still expects robust wage growth in Japan to lead to solid domestic demand, which should keep inflation close to target and enable the central bank to raise interest rates further. However, wage growth still does not seem to be playing along, Commerzbank's FX analyst Volkmar Baur notes.

JPY is likely to remain at its current weaker level

"With a year-on-year increase of 3%, nominal wage growth appears robust, but with inflation currently still above 3% (driven by food prices due to supply problems), real wage growth is still negative. In real terms, wages have therefore continued to fall year-on-year and are currently still around 4% below their pre-pandemic level."

"We therefore continue to find it difficult to expect robust domestic demand. This is particularly true in view of the current uncertainty surrounding the impact of US tariffs on the Japanese economy. For the time being, it appears that at least Japanese car manufacturers have responded to the tariffs by lowering their export prices to the US, thereby absorbing the tariffs. This is likely to weigh on the industry's profits and does not bode well for continued robust wage growth."

"All in all, we do not believe this is an environment in which the central bank will raise interest rates anytime soon. The JPY is therefore likely to remain at its current weaker level."