Japan Wages Grow 0.3 Percent, Slowest Pace This Year

By Toru Fujioka

Sept. 1 (Bloomberg) -- Japan's wages grew at the slowest pace this year, adding to the likelihood households will cut spending as they grapple with higher food and gasoline prices.

Monthly wages, including overtime and bonuses, rose 0.3 percent to 388,315 yen ($3,573) in July from a year earlier, after a 0.4 percent gain in June, the Labor Ministry said in Tokyo today.

The government last week announced measures to help people and businesses cope with surging energy costs that are crippling the world's second-largest economy. Consumer prices rose 2.4 percent from a year earlier in July, the fastest pace in more than a decade in July, prompting households to reduce purchases for a fifth month, reports showed last week.

``Profits are falling and businesses are scaling back,'' said Junko Nishioka, an economist at RBS Securities Japan in Tokyo. ``Over the long term, how much consumers spend depends on wages -- and wages are very likely to decline from here.''

The yen traded at 158.75 per euro at 12:00 p.m. in Tokyo from 159.65 in New York on Aug. 29. The Nikkei 225 Stock Average fell 1.4 percent.

The government said it plans to spend about 2 trillion yen ($18 billion) to revive an economy that shrank an annualized 2.4 percent last quarter. The initiatives include lower highway tolls and projects to help temporary workers find permanent jobs. The government also plans to cut taxes for low-income workers.

Profit Erosion

Crude oil's 57 percent increase in the past year has eroded profits and dissuaded businesses from hiring and increasing pay. The ratio of jobs available to applicants fell in July to the lowest since October 2004, the Labor Ministry said last week.

Weakening demand at home and abroad is prompting companies to cut production. Overtime working hours among manufacturers, which correlate closely with industrial output, dropped 4.9 percent in July, the most since March 2002, said Akira Motokawa, head of the Labor Ministry's statistics division.

Hino Motors Ltd., which makes Hilux Surf sport-utility vehicles for parent Toyota Motor Corp., said last week that it will drop one of two shifts at its Tokyo factory from Oct. 1 as higher gasoline prices damp North American sales.

Household confidence is the lowest in at least 26 years because prices are rising faster than paychecks. Consumer prices excluding fresh food climbed 2.4 percent in July from a year earlier, the most since October 1997. Goods bought at least nine times a year surged 6 percent.

``I'm very concerned that rising prices are directly hitting consumers,'' Economic and Fiscal Policy Minister Kaoru Yosano said last week. ``Wages need to increase at a certain pace for consumer spending to accelerate.''

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net