Japan's Wage Growth Remains at 0.1% as Profits Deteriorate

By Toru Fujioka

Nov. 4 (Bloomberg) -- Japan's wages grew 0.1 percent for a second month, signaling that consumer spending is unlikely to provide impetus for the slowing economy.

Monthly wages, including overtime and bonuses, rose to 273,175 yen ($2,761) from a year earlier, matching the slowest pace this year set in August, the Labor Ministry said in Tokyo today.

Japan's economy is slowing as export-growth cools and the surge in the yen against the dollar cuts the value of overseas sales. Companies such as Sony Corp. and Canon Inc. have cut profit forecasts, worsening the prospects for wages and employment.

``Wage growth is steadily heading toward negative territory,'' said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Securities Co. in Tokyo. ``Consumer spending won't be able to help the economy recover from a recession.''

In an attempt to spur growth, the Bank of Japan cut interest rates to 0.3 percent from 0.5 percent, and the government said it would pump 5 trillion yen into the economy in its second stimulus package since August. Neither move is expected to have much effect of growth.

``It's difficult to imagine those measures will stimulate consumer spending,'' said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. ``Consumers are concerned about a recession and they know those policies from BOJ and government aren't a panacea for the economy.''

A 42 percent drop in Japan's Nikkei 225 Stock Average is also weighing on consumers: household spending fell for a seventh month in September amid record low consumer sentiment.

Overtime Declines

Overtime working hours among manufactures fell 7.9 percent, the biggest drop since March 2002, today's report showed. Manufacturers plan to cut production this month and next month as the global financial crisis damps overseas demand, the Trade Ministry said last week.

``We can see Japan's weakening economy from today's report,'' said Akira Motokawa, head of the Labor Ministry's statistics division. ``Wages have clearly been weakening.''

Second-quarter profit at Sony, the second-largest maker of consumer electronics, fell 72 percent. Canon's profit fell for the first time in nine years, the world's largest camera maker said last week.

Though the economy is slowing and profits are declining, real wages may actually rise as the pace of inflation slows, said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.

Consumer prices excluding fresh food climbed 2.3 percent from a year earlier, after rising 2.4 percent in August. The Bank of Japan last week forecast that inflation would slow to 1.6 percent for the year ending March 31.

``The next few quarters could see real wage growth accelerate during a recession, which would be a very unusual pattern,'' said Jerram. ``Firms appear to be under less pressure to shed labor as their financial position is stronger.''

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