Rabobank’s Senior FX Strategist Jane Foley notes Japanese wage data have improved, with unions securing solid ‘shunto’ wage hikes and real wages rising again, supporting the Bank of Japan’s (BoJ) desired virtuous cycle. However, Foley highlight risks from the Iran war, potential Hormuz disruption, and weakening consumer confidence, while a government panel urges the BoJ to consider funding conditions even as Governor Ueda stresses still very accommodative real yields.

Wage progress meets demand and funding risks

"In late March, unions reported an average wage hike of 5.36% in the ‘shunto’ spring wage talks. Last week’s Japanese wage data release was softer than the market expected. That said, the report showed that real wages in March at 1.0% y/y, rose for the third consecutive month."

"While positive real earnings data should contribute to the BoJ’s aim of creating a virtuous cycle of stronger consumer demand, higher corporate profitability and better wage growth, the impact of the Iran war could threaten the improved outlook. Like other central banks, the BoJ will be worried about the demand destruction element stemming from the closure of Hormuz since higher inflation could threaten further improvements in real earnings."

"Indeed, Japanese consumer confidence has already taken a hit, edging lower in April having already tumbled in March. This morning, Bloomberg reported that a key panel from the Japanese government has urged the BoJ to consider the risks of worsening corporate funding conditions when formulating monetary policy. That said, Ueda has frequently pointed to the very low level of real yields in Japan as evidence of still very accommodative monetary conditions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)