Japan’s wage growth to slow further in 2016

Japan's wage negotiations results are expected to be disappointing based on preliminary information. With the weak global economic environment, it is understandable that the manufacturing companies want to be wary. Export revenues of the manufacturing firms in Japan are expected to moderate in 2016 as weakness persists in external demand and the help of yen's depreciation dissipates. The decline in import costs might also stop as oil prices bottom out. Wage hikes will accordingly be limited due to a weaker outlook of corporate profit.

Meanwhile, the non-manufacturing industry is not performing well. Earnings of Japanese banks are likely to drop in 2016 due to the negative interest rate policy that the BOJ implemented. The effect of declining interest rate margins might outweigh that of a possible increase in lending growth. It appears that the financial sector will freeze pays in 2016.

Media reports have stated that major financial institutions' labor unions have decided to forgo the request for wage rise for FY2016. In 2015, the average base wages in all enterprises, all industries rose just 0.2% y/y. Wage growth rate in 2016 is likely to slow to 0-0.1%. With no notable wage growth, domestic demand and consumption are expected to remain weak in 2016. Outlook of inflation will also be subdued.