Gains in Japan’s wages cooled more than expected in March while early trade figures for April showed export growth slowing, adding to the case for the Bank of Japan to proceed cautiously with interest-rate hikes as economic risks at home and abroad continue to mount.Nominal cash earnings rose 2.1% from a year earlier, decelerating from a revised 2.7% pace in February and below a median economist forecast of 2.5%, the Labor Ministry reported Friday. Real wages continued to fall, dropping 2.1% to deepen the persistent decline in consumer purchasing power, though separate spending figures showed robust household spending in March.
Exports in the first 20 days of April rose at a slower pace of 2.3% from the same period a year earlier, the Finance Ministry reported Friday, a result that suggests some initial impact from Donald Trump’s tariff campaign, but not a dramatic hit. The gain compares with a 4.0% rise for the whole of March. Growth in exports has averaged 6.1% over the year through March.
The weaker wage and trade figures add to the case for BOJ caution in the near term, even if they don’t indicate a need for the BOJ to rethink its tightening campaign. At the central bank’s recent meeting, Governor Kazuo Ueda reiterated the board’s commitment to raise borrowing costs if its economic outlook unfolds as expected, while describing uncertainty as “extremely high” and highlighting his cautious stance.“It will be quite challenging for the BOJ to continue with rate hikes for now,” said Masato Koike, senior economist at Sompo Institute Plus. “Uncertainty is high and there are downward pressure on prices, such as the strong yen and falling oil prices. After April 2, the situation has changed dramatically.”The BOJ left its benchmark interest rate unchanged at 0.5% at the conclusion of the two-day gathering earlier this month and pushed back the timeline for reaching its inflation target. Still, Ueda said the adjustment doesn’t necessarily imply a delay in future rate hikes.Among the key uncertainties is Trump’s tariff campaign. Washington and London reached a trade deal on Thursday that essentially spares the UK the 25% levy on car exports. Whether Tokyo can secure such a deal remains in doubt given Japan’s large trade surplus with the US and far higher presence in its car market. The two sides hope to resume talks later this month.
Items that contributed most to the slowdown in export growth in the first three weeks of April were autos, steel, and mineral fuels, according to a Finance Ministry official. The ministry did not provide a further regional or amount-based breakdown of the trade figures.The weaker wage figures were partly due to temporary factors. In March, total working hours declined by 2.9% from a year earlier, reflecting fewer business days compared with the same month in 2024. Additionally, bonus payments rose around 14%, a sharp deceleration from the 74% surge seen in February, helping to explain the softer overall growth in nominal wages.A more stable wage metric that helps smooth out sampling fluctuations showed that base salaries for full-time workers gained by 2%, an indication that the underlying trend remains solid.What Bloomberg Economics SaysTaro Kimura says, “The softer wage print won’t change the Bank of Japan’s view that price momentum is building, backed by solid wage growth.”The BOJ sees nominal earnings remaining elevated, underpinned by the solid outcome of this year’s wage negotiations. A recent report from Japan’s largest labor union group showed workers secured the largest wage hikes in more than 30 years — gains expected to gradually feed into payrolls through the summer.While continued falls in real wages have put pressure on consumer spending, household outlays in March were larger than expected, with higher private school fees helping to bump up the figure. Spending grew 2.1% from a year earlier after accounting for inflation compared with a consensus forecast of 0.2%. A further expansion of spending by consumers in the coming months would be viewed positively by the central bank.Even so, the BOJ cautioned in its outlook report that the pace of wage growth could moderate, weighed down by softening corporate profits.“Real wages will rise and consumption will recover, but at only a moderate pace,” Koike said. “With consumer sentiment deteriorating and the outlook uncertain, it is unlikely that individuals will accelerate consumption.”
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