Yen's Weakness Sparks Concerns Over Rising Import Costs and Wage Growth in Japan

The recent depreciation of the Japanese yen, which briefly fell past the 160 mark against the US dollar, has raised concerns among government officials and economists about the impact on import prices and real wage growth in Japan, Nikkei Asia reports. While the yen has since rebounded to 154, speculation remains regarding potential intervention by the government and central bank to support the currency.

Masato Kanda, Japan's vice finance minister for international affairs, expressed concerns about the yen's weakness, stating that "Higher prices of imported goods are said to be affecting the most vulnerable people and could also drag on Japan's momentum in raising actual wages." A weaker yen leads to higher import costs, which can accelerate inflation and erode real wage gains.

Real wages, calculated by subtracting inflation from wage increases, have been negative in Japan for 23 consecutive months through February, notes Nikkei Asia. Despite ongoing efforts to boost wages, the weak yen poses a significant challenge to achieving positive real wage growth.

The government has prioritized turning the tide on real wages, with recent labor negotiations resulting in an average base salary increase of 3.57%. However, if the rate of inflation continues to outpace wage growth, real wages will remain negative.

Economists predict that Japan's consumer price index, excluding imputed rent, could rise by 3% year-on-year in the upcoming quarter. A further depreciation of the yen to 170 could push inflation even higher, potentially negating wage gains and hindering efforts to combat the deflationary mindset that has long plagued the Japanese economy.

While a survey by the Japan Center of Economic Research suggests that real wages may turn positive in the July-September quarter, the continued weakness of the yen poses a significant risk to this outlook. The government and central bank will likely face increasing pressure to address the currency's depreciation and its impact on the Japanese economy.