Japan's real wages in August declined for a 17th straight month, government data showed on Friday, as persistent price hikes continued to outpace salaries. Separate data on Friday showed Japan's consumer spending also shrank for the sixth consecutive month in August, squeezing consumers' purchasing power even as major companies offered their biggest pay increases in three decades. Global financial markets are closely following pay trends in the world's third-largest economy as the Bank of Japan (BOJ) emphasises sustainable wage rises as a prerequisite for deciding whether and how to dismantle its ultra-loose monetary stimulus. "It still remains far from the level at which the BOJ can be confident of a virtuous cycle between prices and wages," said Masato Koike, economist at Sompo Institute Plus.

Inflation-adjusted real wages, a barometer of consumer purchasing power, fell in August by 2.5% from a year earlier following a revised 2.7% drop the month before, data from the Ministry of Health, Labour and Welfare showed. The consumer inflation rate officials use to calculate real wages, which includes fresh food prices but excludes rent, slowed to 3.7%, the lowest in 11 months. But nominal pay growth in August was 1.1%, unchanged from July after a downward revision and weaker than in June and May. Prime Minister Fumio Kishida said last week he would submit an extra budget to this month's extraordinary parliamentary session that would fund a new economic stimulus package to help households ease the pain of price hikes and boost wages.

Special payments dropped 5.4% year-on-year in August, the last month of the summer bonus season, marking the biggest fall since January 2021. A labour ministry official attributed the decline to more firms offering the bonus payment earlier this year, reflected in a 0.6% uptick in July and a 3.5% rise in June. Base salary growth in August climbed 1.6% year-on-year, from a revised 1.4% gain in the previous month, the data showed.

Overtime pay, a gauge of business activity, increased in August by 1% year-on-year, after a revised 0.0% in July. WEAK CONSUMPTION Household spending fell 2.5% in August from a year earlier, declining for six consecutive months but better than a median market forecast for a 4.3% decline. On a seasonally adjusted month-on-month basis, household spending rose 3.9%, versus an estimated 0.9% gain.

Spending on food services, transportation, culture and entertainment services increased in August, while spending on a wide range of areas including food and test-prep school expenses decreased, a government official said. Major companies agreed to average pay hikes of 3.58% this year, and strong corporate earnings and labour shortages will help boost wages looking ahead, Sompo's Koike said. "As import prices settle down, the growth rate of consumer inflation is also expected to gradually narrow, and real wages will also recover," Koike said. "Consumption will move toward recovery as wages rise and economic activity normalises." ($1 = 148.9000 yen) (Reporting by Satoshi Sugiyama and Kantaro Komiya; Editing by Christian Schmollinger and Sam Holmes)