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Economy

Japan's wage data offers no respite for Abe with February plunge

Tarnished numbers show worker pay dropping despite tight labor market

Japan's unemployment rate is at the lowest point in decades, but wage increases have been tepid.   © AP

TOKYO -- Japanese wages have been falling since the start of 2019, despite a historically tight labor market. That is casting doubt on the success of a key element of Prime Minister Shinzo Abe's economic program, and the central bank's ability to meet its inflation target.

Cash earnings fell 0.8% in February from a year earlier, according to data from the labor ministry released on Friday. Much of that was due to a 34.2% plunge in non-regular payments. The January data were revised down to a 0.6% drop from a 1.2% increase.

The figures call into question the success of Abe's economic policies, known as Abenomics. One the program's central goals is generating price and wage growth to lift Japan out of deflation. Abe has regularly urged companies to increase workers' pay in the hope that more disposable income will lead to more consumer spending.

The dismal pay data is also unwelcome news for the Bank of Japan, which has maintained an ultraloose monetary policy in pursuit of a 2% inflation goal.

"Wage growth is likely to stay under 1%, which makes it nearly impossible to achieve the BOJ's inflation target of 2%," Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note after the numbers came out.

Wages adjusted for inflation fell 1.1% in February from a year earlier. Real wages in January were revised down to a 0.7% drop from a 1.1% increase.

The government figures have drawn additional scrutiny after a data scandal emerged from the labor ministry. That resulted in the revelation that wages had grown less than previously thought throughout 2018.

Opposition lawmakers accused the ministry of deliberately misrepresenting the state of wage growth to make Abe's policies appear successful, an allegation Abe denies, and one labeled Abenomics a fraud.

The wage data are used to calculate many other economic indicators, like the BOJ's output gap, an important gauge of inflationary pressure in the economy. An investigation found that 40% of Japan's key economic statistics contain errors, and a Nikkei survey conducted from Jan. 25 to Jan. 27 found that 79% of respondents said government statistics could not be trusted.

Problems with the data set may persist. A change in the survey's sampling makes Friday's headline figures appear fairly misleading, Hiroaki Muto, chief economist at Tokai Tokyo Research Center, wrote in a note.

To be sure, languishing wage growth is not likely to continue indefinitely. With unemployment at just 2.3%, Japan's tight labor market should push pay up. "A near-term rebound in wage growth is almost inevitable," Capital Economics' Thieliant wrote.

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