(Bloomberg) -- Japanese wage growth strengthened less than expected in December while still showing signs of sufficient underlying momentum to keep the Bank of Japan on track to end its negative rate regime in the coming months.

Nominal cash earnings rose 1.0% in December from the previous year, with the help of a 0.5% gain in winter bonuses, the labor ministry reported Tuesday. It was an acceleration versus a month earlier but trailed analysts’ expectations of a 1.4% gain. Growth was modest compared with a year earlier, when special allowances pushed up nominal wages by the biggest margin in 26 years.

In a brighter sign, data for full-time workers that avoid sampling problems and exclude bonuses and overtime pay showed growth of 2%, hitting that threshold or above for a fourth consecutive month.

Evidence of steady growth in workers’ payrolls is a precondition for the BOJ as it inches toward normalizing monetary policy with Japan’s first rate hike since 2007. Tuesday’s mixed results come after the bank last month said the degree of certainty for achieving the goal of rising wages with demand-led price gains is increasing. 

“If you look at the high figures from the previous year, it seems that the overall numbers for base-up wages are getting quite strong,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “The possibilities are high at this point” for a March or April move by the BOJ, but “I am predicting a move in April.”

Taguchi said the data that avoid sampling issues have been stabilizing and above 2%, “so it’s evident that wage increases are spreading.”

Read more: Japan’s Wage Talks Closely Watched as BOJ Mulls Rate Hike Timing

Bank of Japan Governor Kazuo Ueda said at a press conference after last month’s stand-pat decision that he will continue to assess data carefully to gauge the state of progress toward a virtuous cycle as rippling effects from higher wages spread toward prices little by little.

A key factor in whether wage increases can be sustained will be annual wage negotiations that kicked off last month. There have already been some positive anecdotal signs, with large companies such as Mizuho Financial Group Inc. and Aeon Co. reportedly pledging wage increases for some workers of as much as 7%. A survey of 37 economists also revealed that big firms are likely to offer a 3.80% average wage hike this year, surpassing last year’s 3.58% gain.

The series of solid wage developments has spurred market speculation that the BOJ could move toward normalizing policy as early as March. In the latest Bloomberg survey, nearly 80% of BOJ watchers were of the view that the bank will end its negative rate by its April gathering. The BOJ’s summary of the January meeting released last week indicated that the board has ramped up preparatory discussions toward an exit.

Even with some progress on compensation, price growth has continued to outpace wage gains, putting household budgets under pressure and weighing on sentiment. In the latest month, real cash earnings continued to fall, sinking by 1.9%, compared with economists’ expectation of a 1.5% decline.

What Bloomberg Economics Says...

“It is bad news for spending power and consumption. With pay significantly lagging inflation, the risk is consumers will balk at paying up for goods and services — making companies more hesitant to raise prices.”

— Taro Kimura, economist

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Separate data partly reflected the impact of that trend. Household spending fell in December by 2.5% from a year earlier, the Ministry of Internal Affairs and Communications said. It was the 10th straight month of declines.

Outlays on fuel, light and water fell along with clothing, footwear and education. Spending on medical care was the only category to increase in real terms.

In contrast to the relatively bright outlook for wage increases at big companies, smaller firms are in a tight spot. Some 35% of 832 small and medium-sized companies aren’t planning a wage hike, with the majority of those firms citing a lack of funds as the reason, according to a survey conducted earlier this month by Johnan Shinkin Bank and Tokyo Shimbun.

Prime Minister Fumio Kishida’s government has been supporting these struggling firms with a number of measures, including tax breaks for companies raising wages and a campaign to encourage businesses to pass on elevated costs to customers.

Along with Kishida, trade union and business leaders have stepped up their calls for wage increases to outpace price hikes. While inflationary pressures appear to have eased a tad, as seen in the sharp cooling in the latest consumer price gauge for Tokyo, price growth is expected to pick up again in coming months.

(Adds economist’s comments)

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