Japanese tertiary activity rebounds

Emily Nicol
Chris Scicluna

Japan’s Shunto spring wage round delivers a significant increase in wages in FY23
All eyes in Japan today were on the preliminary results from the Rengo union confederation presenting the initial outcome of this year’s Shunto spring wage round. And while inevitably below the requested increase, when seniority-based pay is included, the average monthly wage rise for FY23 came in at 3.80%, up from the initial estimate of 2.14% in FY22 and an average increase of close to 2.0% in the previous ten years. This significantly exceeds some expectations for a rise of around 3%. Excluding seniority-based increases, wages are currently set to rise on average by 2.33% in the coming year, similarly a significant step up from an increase of just 0.50% in FY22 in the first round. Final results from the Shunto process will be published by Rengo in early July. Typically the final estimates come in slightly lower than the initial estimates as more results for SMEs are reported. And with unionised employees accounting for less than 20% of Japan’s workforce, the overall increase in wage growth in the coming fiscal year seems bound to be lower than signalled today. Nevertheless, today’s results should be consistent with both increased consumer spending and higher prices, and should allow the BoJ to revise up its inflation forecasts for FY23 and FY24 closer to target following its forthcoming policy meeting at the end of April.

Tertiary activity rebounds on stronger demand for transport, eating out and retail
Consistent with recovery in household expenditure, today’s tertiary activity data for January came in a touch firmer than expected. In particular, services activity rose 0.9%M/M, the most since last May, to leave it up 2.6%Y/Y. The improvement was driven by transport (6.0%M/M), eating out (8.1%M/M), retail trade (1.8%M/M) and medical care (0.7%M/M), as the economy continued to benefit from the release of pent-up demand following the relaxation of pandemic-related restrictions and the return of overseas visitors. Admittedly, accommodation services activity fell back in January (-11.5%M/M) as the government’s discounted travel incentives were scaled back. And following the drop in December, the level of tertiary activity in January was up a more modest 0.6% compared with the Q4 average. Moreover, given the slump in manufacturing production in January (-5.3%M/M), in aggregate Japanese output appears to have had a sluggish start to the year.

Euro area final February inflation and Q4 labour cost figures due
In the euro area, today will bring final February CPI and Q4 labour cost numbers. With only minimal amendments to the final member state estimates – unrevised in Germany (9.3%Y/Y), 0.1ppt higher in France (7.3%Y/Y) but 0.1ppt lower in Italy (9.8%Y/Y) and Spain (6.0%Y/Y) – the aggregate euro area inflation figures should align with the flash estimates, which saw the headline HICP rate edge slightly lower for the fourth consecutive month, by 0.1ppt to 8.5%Y/Y. But given the record increases in services and non-energy industrial goods prices for the month of February, core inflation leapt to a new record high of 5.6%Y/Y. This release will provide more granular detail, allowing for the calculation of other measures of underling price pressures. Of course, given the subsequent intense financial market turbulence over the past week, these releases are unlikely to have a significant bearing on expectations for the near-term monetary policy path.

BoE inflation attitudes survey to be watched for signs of moderating expectations
Of interest for UK policy-makers ahead of next week’s monetary policy decision will be the results from the BoE’s latest quarterly inflation attitudes survey. In December, the survey reported a modest uptick in inflation expectations two and five years ahead, to 3.4%Y/Y and 3.3%Y/Y, with the former the joint-highest since 2011. With upwards pressures on energy prices having abated, we expect inflation expectations to have moderated somewhat this time around.

US industrial production figures and consumer sentiment survey due
In the US, today will bring a number of economic releases including February industrial production data and the preliminary University of Michigan consumer survey. Despite an anticipated increase in demand for energy, a dip in factory employment and shorter working week and a deterioration in the manufacturing ISM suggest a decline in overall manufacturing production last month, having failed to grow in any month since September. Meanwhile, consumer confidence seems likely to have been boosted by the still favourable jobs market and easing in gasoline prices over recent months. Certainly, much of the preliminary survey results will have been collected ahead of collapse of SVB. In terms of inflation, the survey’s measure of expectations 1-year ahead was forecast to have moved sideways at 4.1%Y/Y, with expectations 5-10-years ahead similarly unchanged at 2.9%.

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.