Japan's real wages in July saw the largest increase since 2021, providing support for the central bank to raise interest rates.

(1) Japan's real wages in July increased by 2.4% year-on-year, marking the largest rise since May 2021. This is the seventh consecutive month of growth, surpassing the revised 2.2% in June, indicating a solid wage recovery trend. (2) Nominal cash earnings rose by 4.7% year-on-year to 436,401 yen, the largest increase since January 1997; base pay grew by 4.1% (the fastest pace since April 1992), overtime pay increased by 3.1%, and special payments (including bonuses) rose by 6.3%. (3) According to officials from the Ministry of Labor, the steady rise in nominal wages combined with relatively moderate inflation (the inflation indicator used for calculating real wages rose to 2.2%, up from 1.9% the previous month) have together driven real wages higher. The robust data further supports the Bank of Japan's potential interest rate hike at next week's meeting, with Governor Kazuo Ueda having previously suggested a high likelihood of a rate hike this month.