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Japan's Wage Growth Hits 21-Year High: 4 Top Picks

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Per the latest data issued by Japan’s labor ministry, inflation-adjusted real wages in the country surged 2.8% to its highest levels since 1990s. Such an increase was achieved on the back of a steady increase in regular monthly pay as well as summer bonuses.

This has also led to expectations that Japan’s consumer spending would finally tick up. Moreover, experts believe that Bank of Japan would finally be able to reach its inflation target of 2%. Under such circumstances, investing stocks from the land of the rising sun seems prudent.

Wage Growth at its Highest Level Since January 1997

Japan’s labor ministry also stated on Aug 6 that June’s real wages increased 1.3% compared to May. This was also the biggest increase since 6.2% growth that the metric achieved in January 1997. Moreover, the data comes right ahead of the release of Japan’s second-quarter GDP and might provide the required stimulus to the country’s inflation.

Analysts expect Japan’s second-quarter GDP to hit 1.4% growth. Finally, rising wages are also expected to fuel consumer spending as households in the country are likely to spend their summer bonuses received in June in purchasing luxury items.

Factors Supporting the Increase in Wages

The biggest stimulus to a rise in real wages came from special one-off payments in the form of summer bonuses, which surged 7% on a year-over-year basis. Further, nominal cash earnings increased 3.6% year over year in June, surpassing its 2.1% rate of growth in May.

Moreover, regular pay rose 1.5% in the period compared with a year earlier. A measure of strength in corporate activity, overtime pay, increased at an annual rate of 3.5% in June compared with 2% in May. Also, inflation-adjusted household income surged 4.4% in June, its highest level since July 2015.

Another major factor supporting the growth in real wages was the country’s tightening labor market. Under tight labor market conditions, employers respond by increasing wages in order to restrict attrition levels. Notably, the number of job seekers in Japan increased in June to its highest level in the last 44 years. The country’s job-to-application ratio increased to 1.62 in June from 1.60 in May.

4 Best Choices

Asian giant, Japan witnessed the highest growth in real wages in more than 21 years. This was the result of a steady increase in monthly pays and payouts in the form of summer bonuses. Historically, such events boost consumer spending and thus the GDP. Finally, expectations that Japan’s inflation would finally touch the elusive 2% target were rife.

In this context, we have selected four stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sony Corporation (SNE - Free Report) is the designer, developer and producer of electronic equipment, instruments and devices.

The company is based out of Tokyo and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 24.77%. The Zacks Consensus Estimate for the current year has improved 6.5% over the last 60 days.

Honda Motor Co., Ltd. (HMC - Free Report) is the manufacturer and distributor of motorcycles, automobiles, power products and other related products.

The company is based out of Tokyo and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 3.3%. The Zacks Consensus Estimate for the current year has improved 2.6% over the last 60 days.

ORIX Corporation (IX - Free Report) is the provider of diversified financial services to clients in Japan and the Americas.

The company is based out of Tokyo and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 9.2%. The Zacks Consensus Estimate for the current year has improved 2.8% over the last 60 days.

OBIC Co., Ltd. (OBIIF - Free Report) is a provider of system integration services, system support services, office automation services and package software services. It also sells, leases and develops computers, peripherals, related systems and customized software.

The Zacks Rank #2 company is based out of Tokyo. The expected earnings growth rate for the current year is 8.2%. The Zacks Consensus Estimate for the current year has improved 2.8% over the last 90 days.

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