Japan’s labour cash earnings down at end-2020

Chris Scicluna

Asian stocks follow Wall St gains, longer-dated UST yields settle lower after yesterday’s intraday highs
The US equity rally stretched into a sixth day on Monday, with the S&P500 advancing a further 0.7% to post a new high. Treasury Secretary Yellen’s weekend comments, which we noted yesterday, bolstered optimism that the Biden Administration will force through the bulk of its proposed fiscal stimulus. That also sent the greenback lower for a second consecutive session with further weakening seen in Asia today. But after the 10Y Treasury yield tested 1.20% intraday, it fell back to 1.17% as Wall Street closed and it moved a notch lower again in Asia today. Likewise, having touched 2.00% earlier yesterday for the first time in almost a year, the 30Y UST yield is now back below 1.95%.

For the most part, investors in the Asia-Pacific equity markets have seen no more than modest gains today. In Japan, the TOPIX closed up just 0.1% as labour cash earnings fell by less in December than the market had expected, albeit still taking annual growth to a 5½-year low (more on this below). Markets were also little changed in Singapore and South Korea. But mainland China was a big outperformer with the CSI300 rallying a further 1.8% ahead of the release of the January new lending data, which beat expectations. In particular, China reported slightly stronger-than-expected growth in new loans at CNY3.58trn, a record high, with aggregate financing coming in at CNY5.17trn, about CNY0.5trn more than the BBG consensus forecast. Australia’s ASX200 underperformed with a 0.9% decline, perhaps weighed down by a firmer Aussie dollar and signs that business conditions had come off the boil in in January. These moves also placed downward pressure on Aussie bond yields, with the 10Y ACGB yield falling 4bps to 1.23%. In New Zealand, both the RBNZ and the Government announced plans to clamp down on investor activity in housing. Nonetheless, after being closed for a holiday yesterday, the Kiwi 10Y bond yield jumped a further 6bps to a fresh high of 1.41%, even as the Finance Minister said that the Government’s borrowing requirement over the next 10-years or so would now be $NZ60bn less than projected in September.

Japan’s labour cash earnings down 3.2%Y/Y at end-2020 as winter bonuses decline
The key economic report in Japan today was the preliminary Monthly Labour Survey for December. As far as the headline figures are concerned, average labour cash earnings (per employee) fell 3.2%Y/Y in December. While this was even worse than the 1.8%Y/Y decline in November – indeed, the largest decline registered since June 2015 – today’s outcome was not as weak as the market had feared. After accounting for inflation, real wages declined 1.9%Y/Y, marking the weakest outcome for six months.

In the detail, as expected, the key driver of the deterioration in December was bonus earnings, which declined 5.4%Y/Y. While not as bad as the 12.8%Y/Y drop recorded in November, bonus payments account for a much larger share of overall earnings in December and so exerted a much larger downward impact on growth. The decline in bonuses is not surprising given the fall in corporate profits. Moreover, to the extent that wage flexibility has been a key factor allowing Japanese firms to retain employees in the face of a severe downturn in activity, the decline in bonus payments is not all bad news, even though it might put a dampener on household spending in the near term.

Aside from bonuses, overtime earnings remain an ongoing source of weakness in these figures, although the 8.9%Y/Y decline reported in December was the least since March. As has been the case since the pandemic began, this decline largely reflects a reduction in overtime hours worked (while up 0.8%M/M in December, overtime hours worked fell 7.6%Y/Y). Regular earnings decreased just 0.1%Y/Y in December even as regular hours worked declined 2.0%Y/Y.

Finally, the number of people in regular employment increased 0.1%M/M in December – the seventh consecutive increase – leaving annual growth steady at 0.6%Y/Y. Growth in the number of full-time employees edged up to 1.0%Y/Y, whereas the number of part-time employees fell 0.1%Y/Y.

In other Japanese news, the Machine Tool Builders’ Association, which represents the nation’s largest manufacturers of machines, reported that its members received a 9.7%Y/Y increase in orders in January, little changed from the 9.9%Y/Y increase reported for the prior month. As in previous months, that growth was driven by a 21.6%Y/Y lift in orders from overseas, whereas domestic orders fell 10.9%Y/Y. Meanwhile, reflecting base effects associated the BoJ’s pandemic response, growth in Japan’s M3 money stock edged up to an elevated 7.8%Y/Y in January, while growth in M2 increased to a new high of 9.4%Y/Y.

Drop in UK consumer spending in January illustrated by Barclaycard and BRC reports
A couple of reports released overnight illustrated the hit to UK consumer spending at the start of the year in response to the tightening of lockdown restrictions nationwide. According to Barclaycard, consumer spending fell 16.3%Y/Y as spending on non-essential items fell 24.2%Y/Y while spending on essentials rose 3.9%Y/Y. As people stayed home, spending on fuel dropped by about one third and spending in restaurants fell by more than four fifths. And spending at travel agents and with airlines also fell by more than 80%Y/Y. But online retail rose by almost three-quarters from a year earlier and for more than half of all retail spend tracked by Barclaycard last month. Broadly tallying with those data, the BRC reported that January saw retail sales fall to its weakest since May, albeit falling just 1.3%Y/Y as strong sales of food and durable goods for the home (including IT equipment to support home-schooling) helped to offset much of the weakness in other categories.

BoF suggests that French activity was stable in New Year while German trade growth paused in December following strong growth
Based on its latest business survey released this morning, the Bank of France judged that economic activity in the euro area’s second-largest member state was broadly flat last month despite a modest tightening of pandemic restrictions including earlier curfews and the closure of large shopping malls. In particular, the BoF judged that output remained about 5% below the pre-pandemic level, having picked up in December as the prior month’s stringent lockdown measures were relaxed. While the survey also pointed to expectations of little changed this month too, it’s worth recalling that the BoF survey exaggerated the weakness in French GDP in Q4. While overall economic output fell 1.3%Q/Q last quarter, the BoF had anticipated a drop of 4.0%Q/Q.

Meanwhile, in Germany, just as data yesterday showed that industrial production paused in December after seven successive months of growth, goods trade also took a breather. In particular, the value of exports rose just 0.1%M/M on a seasonally adjusted basis following revised growth of 2.3%M/M in November. And imports edged down just 0.1%M/M following upwardly-revised growth of 5.4%M/M the prior month. So, on the same basis, the trade surplus was unchanged, at €16.0bn. Adjusting for prices, real exports were unchanged in December to be up 4.5%Q/Q in Q4 while imports dropped 0.6%M/M but rose 5.2%Q/Q last quarter.

Another quiet day for economic data ahead in the US
Economic data are unlikely to be a key driver of markets in the US today with the only reports of note being the NFIB small business survey for January and JOLTS report for December. Rising coronavirus cases propelled small business sentiment to a 7-month low last month, while the number of job openings also softened.

Australian business conditions start the year on a softer note, but confidence rises
After ending last year at a more than 2-year high, today’s NAB Business Survey pointed to a marked softening in business conditions in January with the relevant index dropping 9pts to 7 – now only slightly above the long-term average. In the detail, the trading and employment indices fell 10pts and 7pts respectively to return to around average levels, while the capex index continued to track a little below its longer-term average. However, despite the softening of business conditions, the headline business confidence index increased 5pts to 10 – an above-average level that suggests that firms expect the business conditions to evolve more favourably over coming months. Meanwhile, firms reported a 0.6%Q/Q lift in labour costs – also slightly softer than last month – and firms’ selling prices increased just 0.1%Q/Q.

In other Aussie news, ahead of tomorrow’s monthly Westpac survey, the weekly ANZ-Roy Morgan index of consumer sentiment fell an insignificant 0.6% from the previous week’s 15-month high.

Kiwi inflation expectations rise, RBNZ to tighten LVR restrictions on investors, Government indicates will announce measures to quell speculation
Following on from last week’s ANZ Business Outlook Survey, today the RBNZ’s own Survey of Expectations pointed to a notable lift in business sector inflation expectations, with the 1-year ahead expectation rising 0.5ppts to 1.73% and the 2-year ahead expectation rising 0.3ppts to 1.89%. Unsurprisingly, the survey also suggested that respondents no longer anticipated a further easing of monetary policy.

In other RBNZ news, with the horse having already bolted, the Bank announced that the forthcoming re-imposition of LVR restrictions on investor mortgage lending will be even more restrictive than indicated previously. Banks will be able to extend no more than 5% of their new lending to investors with less than a 30% deposit from 1 March, with the deposit threshold rising to 40% from 1 May (in practice, the RBNZ expects these tighter conditions to be applied by banks immediately). As previously signalled, from 1 March, banks will be able to extend no more than 20% of their new lending to owner-occupiers with less than a 20% deposit. Not surprisingly, housing is also a key focus for the government, with Finance Minister Grant Robertson announcing today that he will announce a rolling series of further measures to quell demand from ‘speculators’ later this month, with supply-side measures to be announced in the Budget.

On that score, Robertson also released the annual Budget Policy Statement, which identifies housing affordability, climate change, child poverty and pandemic management and as the government’s key priorities when the Budget is announced in May. With the economy rebounding much more quickly than had been forecast the Government’s books have benefited, with Robertson indicating that the net debt is now expected to be less than 37% of GDP in 2034/35, rather than 48% of GDP as was forecast in September.

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.