Fall in Japan's real wages, spending likely just minor bump for further BOJ hikes

By Satoshi Sugiyama and Chang-Ran Kim

TOKYO (Reuters) -Japan's inflation-adjusted wages fell in August while household spending also declined, but analysts say underlying trends point to a gradual recovery in pay and consumption and should support the central bank's plans for additional rate hikes.

Real wages in the world's fourth-largest economy fell 0.6% in August from the same month a year earlier, according to date released by the Ministry of Health, Labour and Welfare on Tuesday. That came after a revised 0.3% rise in July.

Real wages had turned up in June for the first time in more than two years as companies bumped up summertime bonuses, though the labour ministry had said the contribution of such special payments to the data would wane from August.

Those payments rose 2.7% in August versus a revised 6.6% in July and 7.8% in June.

At the same time, the August wage data showed base salary marked the biggest rise in nearly 32 years at 3.0%, reflecting this spring's labour-management pay negotiations that led firms to deliver the biggest hike in three decades.

"The real wages falling back to a negative territory was expected," said Masato Koike, senior economist at Sompo Institute Plus. "In terms of the data itself, it's not that bad."

Separate data showed household spending declining 1.9% from the year-earlier in August, potentially raising doubts about the strength of private consumption, which accounts for more than half of Japan's economy.

The fall, however, was smaller than the market estimate for a 2.6% drop based on a Reuters poll, and on a seasonally adjusted basis, spending rose 2.0% from the previous month, marking the fastest pace of increase in a year.

"Although the household savings rate remains high, consumption will probably recover gradually if the perception of wage increases improves consumer sentiment," said Yutaro Suzuki, economist at Daiwa Securities.

Sustained wage growth is a prerequisite for the Bank of Japan to raise interest rates again after its first hike in 17 years in March and a follow-up increase in July.

While the central bank said in its quarterly report on Monday that a rise in prices and wages was spreading across Japan, it also noted the concern of small and medium-sized enterprises regarding attendant pressure on profit.

Nominal wages, or the average total cash earnings per worker per month, grew 3.0% to 296,588 yen ($1,999.11) versus August last year, compared with an on-year 3.4% rise in July. Overtime pay, a barometer of corporate strength, grew 2.6%.

The consumer price index officials used to calculate real wages, which includes fresh food prices but excludes owners' equivalent rent, climbed 3.5% in August, the highest rise since October last year.

Japan's economy expanded by an annualised 2.9% rate on solid consumption and core inflation remains above the central bank's 2% target, keeping alive expectations for further rate hikes.

($1 = 148.3600 yen)

(Reporting by Chang-Ran Kim and Satoshi Sugiyama; Editing by Christopher Cushing and Shri Navaratnam)