JP Morgan AM: Japan's strong wage growth points to further policy normalisation
Last week’s labour market data shows Japan remains in a reflationary environment. Although total cash earnings slipped due to fading bonus payments, base pay, excluding bonuses, rose at its fastest pace in over 30 years, and there is evidence that this wage growth is broadening to smaller firms.
This is starting to feed through to stronger consumer spending. Retail sales surprised to the upside in September, and consumer confidence is starting to pick up. We believe this momentum will support the Bank of Japan’s efforts to normalise policy. That said, Governor Ueda has acknowledged the external risks stemming from weak demand in China, a cooling US economy, and an appreciating yen. Thus, any further policy adjustments will likely be gradual and conditional on sustained domestic demand and external stability.
