JPY: Wages disappoint again – Commerzbank

Data on wage developments in March was published in Japan this morning, and was rather disappointing overall once again, Commerzbank's FX analyst Volkmar Baur notes.

Employees still have less disposable income than before

"Despite wage agreements with trade unions being above 5% for the past two years, income growth remains well below this level. At 2.1% year-on-year, growth is still almost twice the pre-pandemic rate. However, due to the current high inflation rate, employees still have less disposable income than before. Consequently, the real wage index fell by a further 2.1% in March."

"This persistently disappointing development in real wages makes sustained inflationary pressure generated by domestic demand unlikely. We therefore continue to assume that inflation will fall again in the coming months, dropping below the Bank of Japan's 2% target in structural terms. Even though we still anticipate that the Bank of Japan will want to raise interest rates in the coming months, it is currently increasingly unclear whether this will be possible."

"Nevertheless, the market is not currently pricing in another rate hike. In the coming weeks, the USD/JPY exchange rate is likely to be driven more by tariff negotiations with the US than by the interest rate differential."