TOKYO (Reuters) -- Japanese workers' inflation-adjusted real wages rose in May at the fastest pace in two years, reversing the prior month's drop, government data showed, in an encouraging sign that higher pay could boost consumer spending and inflation.
May's 1.3 percent rise in real wages from a year earlier marked the biggest annual gain since July 2016, and followed a revised 0.2 percent annual drop in April, labour ministry data showed.
The data should be encouraging to the Bank of Japan as it struggles to accelerate inflation to its 2 percent target despite more than five years of massive monetary stimulus.
Nominal cash earnings rose 2.1 percent on-year in May, the fastest annual gain since June 2003. This followed a revised 0.6 percent gain in April.
Regular pay, which accounts for the bulk of monthly wages, grew 1.5 percent in May from a year earlier, the biggest gain since June 1997, while one-off special payments jumped 14.6 percent.
"Wages remain in a gradually rising trend," said a ministry official in charge of compiling the data.
Factors such as a drop from a year earlier in the percentage of wage-earners who are part-timers, a rise in special payments and the number of weekdays being one more than in May 2017 contributed to overall wage gains, he added.
Overtime pay, a barometer of strength in corporate activity, rose an annual 1.6 percent in May versus a revised 1.8 percent increase in April.
Major Japanese firms, which typically increase wages in unison after spring negotiations with unions, have agreed to hike wages for a fifth year in the fiscal year that started on April 1. The higher wages are expected to kick in from around June.