Japanese wages in July saw their strongest annual increase since 1997, with earnings up 2.6 percent on the year previous. The development was welcomed by consumers, whose wages have so far failed to keep pace with the rate of inflation and compensate for the April sales tax hike.

“Wage growth surged in July, but is set to slow in coming months as the summer bonus season ends,” said Marcel Thieliant, Japan Economist at Capital Economics. “The summer bonus season ends in August, and bonus payments are set to fall sharply. As a result, the growth rate of overall earnings will mostly be driven by changes in regular pay. With base pay expanding clearly less rapidly than bonuses, wage growth will likely slow again but it should stay in positive territory.”

The figures came in much higher than anticipated and represented a sharp uptick on the one percent rise posted in June

The figures came in much higher than anticipated and represented a sharp uptick on the one percent rise posted in June. However, pay, when adjusted for inflation, still shrank for a thirteenth consecutive month, at -1.4 percent, and continues to stifle consumers’ appetite for spending. “Real earnings growth will likely remain negative at least until April’s consumption tax hike falls out of the annual inflation comparison, but with the yen broadly stable over the past year, price pressure is set to decline,” said Thieliant. “This should provide some relief to households.”

Regular pay exhibited a 0.7 percent year-on-year rise – the biggest climb since 2008 and a sizeable increase on the 0.2 percent equivalent in June – but special earnings were up 7.1 percent and accounted for close to two thirds of overall wage growth. Analysts expect the upward trend to continue, although it will take a concerted effort from corporates before real wage growth matches the rate of inflation and boosts household spending.