Japan’s Real Wages Fall for Sixth Consecutive Month as Inflation Outpaces Earnings

Economic

Summary:

Japan’s real wages dropped 1.3% year-on-year in June 2025, marking the sixth straight monthly decline as persistent inflation eroded the impact of summer bonuses, raising concerns over consumer-led economic recovery....

Inflation Undermines Nominal Wage Gains

Data from Japan’s Ministry of Health, Labour and Welfare shows that despite nominal wages rising 2.5% to an average of 511,210 yen ($3,476) in June driven partly by a 3% increase in special income such as bonuses real wages, adjusted for inflation, fell 1.3% from a year earlier. The decline reflects the continued squeeze on purchasing power as consumer prices rose 3.8% in June, with food staples like rice contributing significantly to the increase.

While nominal wages have now increased for 42 consecutive months, the faster pace of inflation has consistently offset gains in disposable income. This real wage contraction threatens Japan’s household spending capacity, a key driver of domestic demand, and could dampen the broader economic recovery in the world’s fourth-largest economy.

Monetary Policy Implications

The Bank of Japan (BoJ), which has kept short-term interest rates at 0.5%, is closely watching wage trends to determine the timing of its next rate hike. Although inflation has stayed above the BoJ’s 2% target creating conditions for policy normalization external risks such as geopolitical tensions and tariff impacts add uncertainty to the rate path. Sustained real wage growth is seen as essential for a stable shift away from ultra-loose monetary policy.

Japan’s struggle to translate nominal pay increases into real income growth underscores the fragility of its consumer-driven recovery. Unless wage growth outpaces inflation, household purchasing power will remain under pressure, complicating the BoJ’s efforts to both support growth and manage inflation expectations.

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Economic

Leadership Structure and Mandate

Under Decision No. 1689/QĐ-TTg, effective August 6, Prime Minister Phạm Minh Chính is appointed as Head of the Steering Committee for the construction of nuclear power plants. Permanent Deputy Head is Deputy Prime Minister Bùi Thanh Sơn, with Minister of Industry and Trade Nguyễn Hồng Diên serving as Deputy Head.

The committee, originally established under Decision No. 72/QĐ-TTg on January 10, is tasked with directing the continuation of investment policy for the Ninh Thuận nuclear power project. This includes supervising implementation, resolving obstacles, and proposing solutions to ensure timely progress.

Causal Link Between Policy Development and Project Implementation

The directive to amend, supplement, and stems from the recognition that existing legal frameworks must align with the technical, safety, and security demands of nuclear power generation. Strengthening these regulations is viewed as a prerequisite for both operational safety and international compliance, thereby directly affecting the feasibility and credibility of the project.

The Steering Committee will guide the formulation of Vietnam’s nuclear power development program for submission to relevant authorities. It will also coordinate cooperation with foreign partners, international organizations, and the International Atomic Energy Agency (IAEA) to leverage global expertise and ensure compliance with international nuclear safety and security standards.

Regular reporting to the Prime Minister on the status of the Ninh Thuận project and other assigned tasks will be required, ensuring central government oversight and timely decision-making.

By placing the Prime Minister at the head of the Steering Committee, Vietnam signals the strategic importance of nuclear power in its long-term energy mix. The approach combines domestic legal reform, project execution oversight, and active international collaboration positioning the Ninh Thuận project as both a technological milestone and a test case for Vietnam’s broader nuclear ambitions.

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Economic

Households Adjust Spending to Cope with Inflation

A recent Kantar survey shows that 57% of Mexican consumers now prioritize cheaper products to manage household budgets, while 35% reduce the quantity or volume of purchases. Despite headline inflation easing from previous years, it remained above 4.5% at the end of June, continuing to squeeze purchasing power.

The shift is most pronounced in essential categories such as food, beverages, and personal care, where buyers increasingly opt for supermarket private labels or lower-cost brands. This trend is not confined to low-income households; even middle-class consumers traditionally loyal to major brands are adjusting purchasing preferences to control expenses.

Causal Link Between Price Pressures and Local Product Preference

Inflation has also reinforced support for domestically produced goods. Over half (52%) of respondents said they prefer items labeled “Hecho en Mexico,” both to back local production and to secure more competitive prices. This link between price sensitivity and patriotic consumption reflects a structural change in buying behavior that benefits domestic manufacturers while challenging import-reliant retailers.

The “hard discounter” model is gaining ground, with chains such as 3B, Neto, and Bodega Aurrerá Exprés expanding rapidly. Between 2023 and 2025, Mexico’s discount store count increased by 20%, with 3B outlets accounting for 40% of nearly 7,500 such stores nationwide. This growth indicates a sustained demand for low-cost retail channels and puts pressure on traditional supermarkets to adapt pricing and product strategies.

Potential Long-Term Structural Shifts

Kantar’s findings suggest that the “low-price first” approach may become a lasting consumer habit if economic pressures persist, potentially reshaping Mexico’s retail market. Businesses may need to adjust product portfolios, marketing strategies, and pricing policies to match evolving demand patterns. For premium brands, the challenge will be retaining relevance and market share amid a growing emphasis on affordability.

Similar “value-seeking” trends are evident in Argentina, Colombia, and Peru, where consumers sacrifice some quality to sustain purchasing power. Mexico, however, retains a stronger economic buffer thanks to robust export growth, industrial output, proximity to the US market, and rising foreign investment. Even so, if inflation remains elevated, domestic consumption could weaken, undermining broader economic growth.

If the migration toward lower-priced goods continues, Mexico’s retail sector may see deeper segmentation between value-driven and premium segments. This could trigger ripple effects across production, supply chain, and branding strategies, compelling companies especially in high-end markets to reconsider their positioning in an increasingly price-sensitive environment.

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IC Markets

Commodity

Forex

Economic

What happened in the U.S session?

The overnight U.S. session was defined by new tariff implementations, tech sector optimism led by Apple, increased confidence in Fed rate cuts due to weak data, and heightened volatility in currencies and commodities. Tech and semiconductor equities, the USD, U.S. Treasuries, and global indices were most responsive to these headlines and data releases.: A string of weak U.S. macro data (stagnant ISM services, slow payrolls) increased market expectations for a Fed rate cut by September to 90%. The White House signaled it would announce new Fed leadership prospects soon. These developments drove down Treasury yields and weakened the U.S. dollar.

What does it mean for the Asia sessions?

Asian traders should focus on China’s liquidity and loan growth data, Japan’s service sector sentiment, Indonesia’s consumer outlook, and ongoing trade/tariff headlines. Markets will likely remain headline-driven and sensitive to any fresh news on global monetary policy, with a defensive tilt amid macro uncertainty. Ongoing U.S. tariff measures on Asian exports, especially semiconductors, continue to drive volatility in regional tech, chip, and export-focused stocks. Traders remain cautious as headline risk persists around the next-phase U.S.-China trade negotiations and tariff exemptions.

The Dollar Index (DXY)

The dollar has been under pressure due to weak macro data and increased rate cut expectations, but stabilized amid speculation over new Fed leadership and ongoing trade policy developments. Expect further volatility tied to upcoming economic releases, Fed announcements, and geopolitical headlines. After consecutive losses, the dollar stabilized around the 98.00–98.40 area, finding some support from technical levels and fresh rate speculation. The daily chart suggests a neutral outlook, and the market awaits further macro data or policy signals, so rangebound trading is possible near-term.Central Bank Notes:

● The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25% to 4.50% at its meeting on July 29–30, 2025, keeping policy unchanged for the fifth consecutive meeting.

● The Committee reiterated its objective of achieving maximum employment and inflation at the rate of 2% over the longer run. While uncertainty around the economic outlook has diminished since earlier in the year, the Committee notes that challenges remain and continued vigilance is warranted.

● Policymakers remain highly attentive to risks on both sides of their dual mandate. The unemployment rate remains low, near 4.2%–4.5%, and labor market conditions are described as solid. However, inflation is still somewhat elevated, with the PCE price index at 2.6% and core inflation forecast at 3.1% for year-end 2025, up from earlier projections; tariff-related pressures are cited as a contributing factor.

● The Committee acknowledged that recent economic activity has expanded at a solid pace, with second-quarter annualized growth estimates near 2.4%. However, GDP growth for 2025 has been revised downward to 1.4% (from 1.7% projected in March), reflecting expectations of a slowdown in the coming quarters.

● In the revised Summary of Economic Projections, the unemployment rate is expected to average 4.5% in 2025, and headline PCE inflation is forecast at 3.0% for the year, with core PCE at 3.1%. Policymakers continue to anticipate that inflation will moderate gradually, with ongoing risks from tariffs and global conditions.

● The Committee reaffirmed its data-dependent and risk-aware approach to future policy decisions. Officials stated they are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede progress toward the Fed’s goals.

● As previously outlined, the Committee continues the measured run-off of its securities holdings. The pace of balance sheet reduction, which slowed since April (monthly redemption cap on Treasury securities reduced from $25B to $5B, while holding agency MBS cap steady at $35B), was left unchanged this month to support orderly market functioning and financial conditions.

● The next meeting is scheduled for 16 to 17 September 2025.

Next 24 Hours Bias

Weak Bearish

Gold (XAU)

Gold has reached new historic highs amid surging safe-haven demand, trade and policy uncertainty, and expectations for looser Fed policy. While some consolidation is possible after such strong gains, long-term momentum and underlying macroeconomic drivers remain in gold’s favor. By late Thursday, spot gold prices hovered around $3,374.90–$3,389.45/oz, up around 0.4–0.6% on the day and 2.5–2.7% for the month. Domestic prices (such as Indian and Vietnamese benchmarks) also hit all-time highs, reflecting heightened demand as a safe haven asset and, in some regions, additional local currency depreciation.Next 24 Hours Bias

Medium Bullish

The Australian Dollar (AUD)

The RBA is highly likely to announce a cash rate cut in its August meeting, with further easing moves expected later in the year as domestic inflation moderates and the labor market softens. June economic data was robust for retail sales and building approvals, though the latter may be volatile month-to-month. Australian shares are consolidating after setting record highs, with volatility expected amid global uncertainty and tariff risks. House prices are trending up, driven by rate cut expectations and supply shortages. Watch for the RBA announcement, ongoing U.S. tariff developments, and responses in the AUD, local equity markets, and fixed income instruments.

Central Bank Notes:

● The RBA held its cash rate steady at 3.85% at the July meeting on 8 July 2025, following a 25bps reduction in May and in line with widespread market expectations after recent data showed inflation tracking within the target band.

● Inflation continues to ease from its peak, with higher interest rates helping to rebalance demand and supply across the Australian economy. Data for the June quarter signaled ongoing progress, though underlying pressures persist in certain sectors.

● Trimmed mean inflation for the June quarter likely remained near 2.9% and headline CPI around 2.4%, both within the RBA’s 2–3% target range. The Board noted further evidence of inflation convergence, but flagged that not all price categories are moving in tandem.

● Financial markets have shown increased volatility in the wake of global tariff and trade policy developments—especially as a result of recent U.S. and EU announcements. This has pushed asset prices higher but contributed to an uncertain outlook for domestic growth and employment.

● Private domestic demand showed a tentative recovery. Real household incomes improved and signs of easing household financial stress emerged, but some business sectors continued to face subdued demand, limiting their ability to pass on cost increases.

● Labour market conditions remained tight overall. Employment continued to expand, with low rates of underutilization. Business surveys suggest labour availability remains a constraint, though there are signs of a gradual easing compared to earlier in 2025.

● Underlying wage growth softened modestly, though unit labour cost growth remains elevated due to below-trend productivity gains. The Board remains attentive to developments in wage and productivity dynamics as cost pressures continue to evolve.

● Uncertainties persist for both domestic activity and inflation. Consumption growth has risen, but more slowly than anticipated three months ago, with global and domestic factors both contributing to the cautious outlook.

● There remains a risk that household spending picks up more slowly than forecast, which could result in ongoing subdued aggregate demand and a sharper deterioration in employment conditions.

● Given that inflation is expected to remain around the target band, the Board judged that it was appropriate to keep policy settings unchanged in July, maintaining a position that is still mildly restrictive.

● The Board continues to monitor all incoming data and assesses risks carefully, with a focus on global trends, domestic demand indicators, inflation outcomes, and the labour market outlook.

● The RBA remains committed to its mandate of price stability and full employment and stands ready to adjust policy as needed to achieve these objectives.

● The next meeting is on 11 to 12 August 2025.

Next 24 Hours Bias

Weak Bearish

The Kiwi Dollar (NZD)

The NZD has strengthened in the short term on global risk appetite and supportive Chinese data, but the outlook remains cautious due to softening domestic employment, easing inflation, rising expectations for RBNZ rate cuts, and ongoing external trade risks. The currency has appreciated over the last two sessions and is trading around 0.594–0.595, its highest in a week. This lift is attributed to a combination of risk-on sentiment in global markets, strong export data from China (a key New Zealand trading partner), and a softer U.S. dollar as markets anticipate a Federal Reserve rate cut.

Central Bank Notes:

● The Monetary Policy Committee (MPC) agreed to hold the Official Cash Rate (OCR) at 3.25% on 9 July, marking the first pause following six consecutive rate cuts.

● The MPC cited heightened uncertainty and near-term inflation risks as reasons to wait until August for further action.

● Although the annual consumer price index inflation increased to 2.5% in the first quarter of 2025, it remained within the MPC’s target range of 1 to 3%, noting that the outlook for medium-term inflation pressures has evolved broadly in line with the May MPS projections.

● While it is expected to be near the upper end of the band in the second and third quarters of this year, easing core inflation and spare capacity in the economy should help return it toward the 2% midpoint over time.

● The MPC noted that, despite global factors, domestic financial conditions are evolving broadly as expected, as mortgage and deposit interest rates have continued to decline, reflecting a lower OCR, strong bank liquidity, and soft credit growth.

● In aggregate, GDP growth over the December and March quarters was stronger than expected, reflecting a pickup in household consumption and business investment. However, higher-frequency indicators suggest weaker-than-expected growth in April and May.

● Large economic policy shifts overseas and concerns about sovereign risk could result in additional financial market volatility and increased bond yields, while prolonged economic uncertainty might induce further precautionary behaviour by households and firms, slowing the domestic economic recovery.

● Subject to medium-term inflation pressures continuing to ease in line with the Committee’s central projections, the Committee expects to lower the OCR further, broadly consistent with the projection outlined in May.

● The next meeting is on 20 August 2025.

Next 24 Hours Bias

Weak Bearish

The Japanese Yen (JPY)

The Japanese yen remains sensitive to both domestic economic headwinds (including a downgraded growth forecast and sticky inflation) and global factors (Fed rate cut expectations, U.S. tariffs). Expect the JPY to stay headline-driven, with risk sentiment, U.S. policy updates, and BoJ communications shaping moves going into the weekend. As of August 7, 2025, the USD/JPY exchange rate was at 147.27, up slightly from the previous session. Over the past month, the yen has weakened moderately (about -0.28% vs the USD), reflecting ongoing concerns about weak growth and trade uncertainty. The yen has, however, traded well above its multi-decade lows seen earlier in the summer.

Central Bank Notes:

● The Policy Board of the Bank of Japan decided on 31 July, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:

● The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.

● The BOJ will maintain its gradual reduction of monthly outright purchases of Japanese Government Bonds (JGBs). The scheduled amount of long-term government bond purchases will, in principle, continue to decrease by about ¥400 billion each quarter from January to March 2026, and by about ¥200 billion each quarter from April to June 2026 onward, targeting a purchase level near ¥2 trillion in January to March 2027.

● Japan’s economy is experiencing a moderate recovery overall, though some sectors remain sluggish. Overseas economies are generally growing moderately, but recent trade policies in major economies have introduced pockets of weakness. Exports and industrial production in Japan are essentially flat, with any uptick largely driven by front-loaded demand ahead of U.S. tariff increases.

● On the price front, the year-on-year rate of change in consumer prices (excluding fresh food) remains in the mid-3% range. This reflects continued wage pass-through, previous import cost surges, and further increases in food prices, particularly rice. Expectations for future inflation have begun to rise moderately.

● The effects of the earlier import price and food cost increases are expected to fade during the outlook period. There may be a temporary stagnation in core inflation as overall growth momentum softens.

● Looking forward, the economy is likely to see a slower growth pace in the near term as overseas economies feel the pinch of ongoing global trade policies, putting downward pressure on Japanese corporate profits. Accommodative financial conditions are expected to buffer these headwinds somewhat. In the medium term, as global growth recovers, Japan’s growth rate is also expected to improve.

● With renewed economic expansion, intensifying labor shortages, and a steady rise in medium- to long-term expected inflation rates, core inflation is projected to gradually pick up. By the latter half of the BOJ’s projection period, inflation is forecast to move in line with the 2% price stability target.

● There are multiple risks to the outlook, with especially elevated uncertainty regarding the future path of global trade policies and overseas price trends. The BOJ will continue to closely monitor their impact on financial and foreign exchange markets, as well as on Japan’s economy and inflation.

● The next meeting is scheduled for 17 to 18 September 2025.

Next 24 Hours BiasStrong Bullish

Oil

The oil market on August 8 is balancing between OPEC+ output increases, fragile demand, and major geopolitical risks centered on Russian sanctions and global trade. Prices are off six-week lows but remain highly sensitive to headlines about sanctions, trade, and any disruptions to Russian or Middle Eastern supply. Oil prices entered today stabilized just above multi-week lows, with Brent crude futures near $68 and WTI around $65–66 per barrel after a volatile week. This rebound followed a series of declines caused by oversupply concerns, even as summer demand remains strong and U.S. crude inventories posted a larger-than-expected drawdown of 3 million barrels last week.Next 24 Hours Bias

Weak Bearish

Source: IC Markets

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Economic

Soft Inflation and Labour Market Weakness Support Policy Easing

According to a Reuters survey conducted from August 4–7, all 40 participating economists anticipate that the Reserve Bank of Australia (RBA) will lower its benchmark cash rate by 25 basis points to 3.60% on August 12. The move would follow last month’s surprise pause and reflects a policy environment shaped by cooling inflation and deteriorating labour market conditions.

Australia’s consumer price index fell to 2.1% in the second quarter, its lowest level in nearly four years and near the lower end of the RBA’s 2–3% target range. At the same time, the unemployment rate rose to 4.3% in June, the highest in three and a half years, signalling a slowdown in hiring. With household consumption accounting for more than half of GDP growth, softer domestic demand is reinforcing the case for less restrictive monetary settings.

Causal Link Between Economic Data and Rate Outlook

The combination of easing price pressures and weaker employment data is directly influencing rate expectations. As Nomura senior economist Andrew Ticehurst noted, second-quarter inflation came in no worse than expected, and the recent weak labour market report was sufficient to justify a 25-basis-point cut. This suggests that the RBA’s earlier concerns about persistent inflation may have been overstated, shifting the balance of risks toward supporting growth.

Looking beyond August, the survey results indicate a strong consensus for continued easing. More than 92% of respondents (35 out of 38) forecast another 25-basis-point cut in the next quarter, bringing the cash rate to 3.35% by year-end. Two economists expect a more aggressive move to 3.10%, while only one foresees no further change from 3.60%.

Australia’s major banks ANZ, CBA, NAB, and Westpac all share the view that the cash rate will end 2025 at 3.35%. The median forecast also points to an additional reduction in March 2026 to 3.10%, after which rates are expected to remain stable through the end of 2026.

With inflation under control and labour market conditions softening, the RBA appears set to pivot further toward growth-supportive policy. The anticipated cut on August 12 would mark a step toward a more accommodative stance, with markets already pricing in another reduction before year-end. This trajectory reflects a calculated response to an economy facing reduced price pressures but increasing signs of demand weakness.

Source: VT Markets

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Leaders Align on Multilateralism and Fair Trade

On August 7, Brazilian President Luiz Inacio Lula da Silva and Indian Prime Minister Narendra Modi held a one-hour phone call to discuss the global economic outlook and rising trade tensions. In a joint statement, both leaders emphasized the need to protect multilateralism and address current global challenges while exploring opportunities for deeper economic integration.

This diplomatic alignment comes as both countries face steep tariff hikes from the United States. On August 6, President Donald Trump raised import duties on Indian goods to 50% in retaliation for New Delhi’s continued purchases of Russian crude oil. Brazil was hit with the same tariff rate due to Trump’s dissatisfaction with its handling of former president Jair Bolsonaro’s prosecution.

US Tariffs Driving Strategic Reorientation

Washington’s tariff actions have become a direct catalyst for Brazil and India to seek stronger cooperation. For India, the US move compounds tensions already heightened by energy policy disputes, while for Brazil, it follows political friction over judicial actions against Bolsonaro. The shared experience of tariff escalation creates a mutual incentive to coordinate economic and diplomatic strategies, especially in forums where both nations have influence, such as BRICS.

The US has framed these tariff increases as part of a broader effort to pressure Russia into accepting a ceasefire in Ukraine, warning that Russian trade partners could face economic penalties. Moscow has rejected the pressure, asserting sovereign rights to choose trade partners.

Against this backdrop, Modi is expected to travel to China later in August his first visit in seven years to attend the Shanghai Cooperation Organization (SCO) summit in Tianjin on August 31–September 1. Sources indicate he will also hold a bilateral meeting with Chinese President Xi Jinping. This move suggests India is seeking to diversify its diplomatic engagements as relations with Washington face strain.

The latest US tariff measures are accelerating Brazil and India’s pivot toward closer collaboration and diversified international partnerships. By reaffirming support for multilateralism and engaging in high-level talks, both nations are positioning themselves to counterbalance US trade pressure while deepening strategic ties with other major economies, including China. The evolving alignment may reshape their roles in global trade negotiations and within emerging market alliances.

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Commodity

A Geopolitical and Economic Crossroads for New Delhi

The US has moved to impose an additional 25% tariff on Indian goods, on top of a previously announced 25%, as punishment for India’s continued imports of Russian oil. This escalation challenges Prime Minister Narendra Modi’s balancing act between preserving a long-standing strategic relationship with Moscow and safeguarding vital economic ties with Washington, India’s largest single-country export market.

The economic stakes are stark. According to ICRA, India saved roughly $3.8 billion on oil purchases in the year to March by leveraging Russian discounts. However, its goods exports to the US totaled about $87 billion in 2024 meaning the scale of potential losses from trade disruption dwarfs the savings from Russian crude imports.

From Economic Leverage to Political Posturing

While oil market conditions sub-$70 prices and ample supply following OPEC+’s move to restore production could theoretically allow India to scale back Russian imports without creating a domestic energy crunch, political dynamics complicate the decision.

Analysts note a strong domestic pushback against appearing to yield to US pressure, with Modi’s political base and opposition alike framing the issue as one of sovereignty. Vandana Hari of Vanda Insights described the US approach as “trying to pressure Putin with a gun on India’s shoulder,” a tactic unlikely to win compliance in New Delhi.

Eroding Discounts Reduce the Economic Incentive

The financial advantage of Russian barrels is fading. In May, Indian refiners paid just $4.50 less per barrel for Russian oil compared to Saudi crude down sharply from discounts exceeding $23 in 2023. As a price-sensitive buyer, India now faces a reduced economic cost for shifting to alternative suppliers. ING’s Warren Patterson argues that from a purely economic standpoint, preserving US trade access outweighs the value of current Russian oil discounts.

State-owned refiners such as Indian Oil Corp., Bharat Petroleum, and Hindustan Petroleum have already turned to the spot market for prompt cargoes from the US, Nigeria, and the UAE. For longer-term supply, they are expected to seek incremental volumes from Saudi Arabia and Iraq. However, absent formal sanctions on Russian oil, no wholesale change in procurement strategy has been announced.

India’s pivot to Russian crude since 2022 followed the G7’s $60 price cap, which allowed it to buy discounted barrels without breaching sanctions. This shift displaced traditional suppliers in the Middle East and made Russia India’s top crude source, accounting for about 37% of imports in 2025.

Potential Ripple Effects on Global Oil Flows

If India significantly reduces its Russian crude intake estimated at around 1.8 million barrels per day the impact will reverberate across global oil markets. Russia may seek to redirect these volumes to China, but Beijing is unlikely to absorb all of it, both to avoid over-dependence on Russian supply and to maintain diversified import sources. Should China take on a substantial share, it risks drawing similar tariff scrutiny from Washington, with Trump already hinting at such measures.

India’s decision in the coming weeks will hinge less on immediate economics and more on political calculus both domestic and diplomatic. With the US market far more valuable than current Russian oil discounts, economic logic favors scaling back imports from Moscow. However, the optics of appearing to capitulate to US demands could keep New Delhi’s adjustment measured rather than abrupt, prolonging uncertainty in both energy and trade relations.