Japan’s Ministry of Health, Labour and Welfare said nominal wages in July rose 4.7% from a year earlier, the biggest increase since January 1997, adding to market expectations that the Bank of Japan could raise rates this month.
Nominal wages beat forecasts in July
The ministry’s preliminary Monthly Labour Survey, released on Sept. 8, showed nominal wages climbing 4.7% year over year in July. That was above economists’ 3.8% forecast and faster than the revised 4.0% pace recorded in June. It was also the sixth straight month with wage growth above 3%, the longest such stretch in 34 years.
Average nominal monthly pay stood at ¥436,401, or about $2,800. Over a longer period, wage growth has now held above 3% for six consecutive months, the longest run of strong pay growth since 1992, near the end of Japan’s bubble era.
Real wages extend gains to seven months
The report said real wages, adjusted for inflation and excluding rent, increased 2.4% in July from a year earlier. That was the biggest gain in about five years and marked the seventh consecutive month of positive growth.
Base pay, described as scheduled cash earnings, rose 4.1%, the fastest pace since April 1992. Real wages for full-time employees, excluding bonuses, overtime pay and sampling bias, rose 2.7%, according to the report.
BOJ September hike expectations strengthen
The wage data added to expectations that the Bank of Japan will tighten policy at its Sept. 17-18 meeting. The BOJ’s current policy rate is 1.0%. At its July 31 meeting, the board voted 8-1 to keep the rate unchanged, with board member Hajime Takata casting the lone dissent and calling for an immediate move to 1.25%.
Markets have now almost fully priced in a 25-basis-point increase at next week’s meeting. Some investors also expect additional tightening after a relatively short interval. Market pricing points to roughly 75 basis points of cumulative rate hikes by April 2027.
BOJ Governor Kazuo Ueda said in late July that the central bank could speed up rate hikes if financial conditions were judged to be excessively loose. After the latest wage figures, the debate in markets has shifted more toward timing and magnitude than direction.
Yen carry-trade unwind risk remains in focus for crypto
For crypto investors, the report framed the main risk not as the wage data itself, but as pressure on the yen carry trade. The strategy involves borrowing in low-yielding yen and putting that money into higher-yielding or more volatile assets such as U.S. Treasuries, tech stocks and Bitcoin.
If the BOJ raises rates and the yen strengthens, borrowing costs rise and leveraged positions can be forced to unwind. That can pull money out of risk assets. Because crypto markets trade 24 hours a day and react quickly to shifts in liquidity, they are often among the first positions cut during deleveraging.
The report cited the global market plunge on Aug. 5, 2024 as a live example. It also noted that this episode may be less volatile than an earlier surprise hike because investors have had time to prepare for the move.