Strong wage growth bolsters case for October BoJ rate hike:
Japan July data. Real wages +0.5% y/y. Household spending +1.4% y/y (exp 2.3%)The yen rose after the data.
Today's data out of Japan has reinforced expectations that the Bank of Japan could raise interest rates as soon as October, ING said in a note on Friday.
Labour cash earnings rose 4.1% year-on-year in July, accelerating from 3.1% in June and topping consensus forecasts of 3.0%. Bonus pay jumped 7.9%, while base pay climbed 2.6%. Real wages, adjusted for inflation, also turned positive for the first time since December, rising 0.5% y/y. Household spending gained 1.4% y/y in July—below forecasts but marking a third consecutive increaseING highlighted that Japan’s minimum wage is set for its biggest ever rise, to ¥1,121 from ¥1,055, which should help underpin wage momentum and sustain inflationary pressures. “We continue to believe the BoJ will deliver a 25bp hike in October,” the bank wrote, citing the stronger wage backdrop and resilient GDP growth in the first half of the year.
Political and trade risks remain, however. President Trump on Thursday signed an executive order cementing the 15% tariff agreement between the U.S. and Japan, providing some trade clarity but underscoring ongoing external pressures. Domestically, Prime Minister Shigeru Ishiba faces potential leadership challenges within the ruling LDP, which could inject political uncertainty into financial markets.
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