Japan's real wages have risen for four consecutive months; Nomura: A rate hike in June is "almost certain."

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Japan’s real wage growth accelerated, registering positive growth for four consecutive months, providing strong support for a likely rate hike by the Bank of Japan this month. Nomura Securities’ Chief Market Economist stated that a June rate hike is “almost certain.”

Data released by Japan’s Ministry of Health, Labour and Welfare on Friday showed real wages, adjusted for inflation, rose 1.9% year-on-year in April, higher than the revised 1.4% in the previous month, beating economists’ expectations of 1.7% and marking the longest streak of gains since the end of 2021. Nominal wages grew 3.5% year-on-year, also exceeding the market forecast of 3.1%.

The data was released as the Bank of Japan prepares to hold its monetary policy meeting on June 15-16, with markets widely expecting a 25-basis-point rate hike. Nomura Securities’ Chief Market Economist Kohei Okazaki said, “The results of this spring’s wage negotiations continue to support income improvement. Unless the Middle East situation significantly worsens again, a June rate hike is nearly a done deal.”

Wage data beats expectations, foundation for rate hike strengthens

Wage data in April comprehensively surpassed expectations, providing substantive support for the Bank of Japan’s policy normalization path. Nominal wages grew 3.5% year-on-year, higher than the market expectation of 3.1%; base wages increased 3.4%; and the basic salary index for full-time employees, which BOJ officials closely track, rose 2.6% year-on-year—all indicating strong intrinsic momentum behind wage growth.

Bloomberg economist Taro Kimura noted that the acceleration in wage growth in April further reinforced the case for a rate hike at the BOJ’s June 15-16 meeting. The results of this year’s spring wage negotiations (Shunto) are gradually materializing in actual pay. BOJ research shows that wage increases will be reflected in payrolls before June.

Robust corporate earnings also provide a foundation for wage growth. A survey released by Japan’s Ministry of Finance on Monday showed recurring profits grew across almost all industries in the first quarter, with manufacturing reaching a record high for a single quarter, largely benefiting from a weak yen and inflationary environment.

Rising rate hike expectations, authorities assess subsequent pathways

BOJ Governor Kazuo Ueda signaled on Wednesday that the central bank will focus on countering inflationary pressures, noting that upside price risks outweigh downside economic risks overall. “Based on current data and on-the-ground information, price risks are more prominent and likely to emerge earlier,” he said.

According to Bloomberg, citing informed sources, the authorities have already been discussing a June rate hike this week and will evaluate the scope for further hikes towards late 2026.

However, Okazaki also warned of potential risks: Inflation may accelerate later this year—especially in Q4 and Q1 next year—at which point real wages may temporarily decline and private consumption may soften. But we do not expect a significant drop in consumption; overall consumption should remain resilient and stable throughout 2026.

Weak consumption data raises sustainability concerns

Despite strong wage data, consumption data released on the same day sent a warning signal. Japan’s Ministry of Internal Affairs and Communications reported that inflation-adjusted household spending dropped 0.5% year-on-year in April, marking the fifth consecutive monthly decline. Spending on food, utilities, and apparel/footwear all declined, with only housing expenditures increasing.

Uncertainty from Middle East tensions is also eroding corporate confidence. A recent Japan Economy Watcher survey showed business sentiment weakening due to regional conflicts, with more respondents reporting supply disruptions and bottlenecks worsening. Meanwhile, April’s producer price gains hit a 12-year high, putting pressure on many companies’ profits.

On the consumption side, Japanese food and beverage companies will raise prices on over a thousand products in June, far more than the 84 products in May, partly due to higher costs for chemical raw materials used in plastic packaging. To alleviate household pressures, Prime Minister Sanae Takaichi has pledged to restore power and gas subsidies this summer, while the government has drawn up a supplementary budget of 3.1 trillion yen (about $19.4 billion) to address possible impacts from Middle East conflicts, with some funds likely going to extend gasoline subsidies.

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