Japan’s Wage Woes Continue: Real Wages Fall At Fastest Pace Since 2014

Last updated on March 9th, 2023 at 07:04 am

Japanese workers’ real wages fell the most in nine years in January despite the government’s push for more pay, highlighting the challenges encountered while trying to achieve the central bank’s goal of inflation accompanied by sturdy wage gains.

Prime Minister Fumio Kishida has frequently reiterated his requests for business leaders to raise wages at a faster pace than inflation, in order to improve citizens’ spending power and kickstart a virtuous economic cycle. The government’s recent economic stimulus package covered incentives for businesses to raise payrolls.

Inflation continuing to outpace gains in wages is imposing enormous pressure on consumption, prompting a major decline in household spending. January data reported Tuesday suggested real cash earnings for Japanese workers fell 4.1% from a year earlier, dropping for a 10th consecutive month.

Growth in nominal wages sharply slowed from the previous month’s highest jump in a quarter century, which was majorly triggered by increasing winter bonuses. The Bank of Japan is likely to maintain its easy policy this week as Tuesday’s data confirmed that December’s rise wasn’t permanent.

Wages have now become an essential component for the future of monetary policies in the country. Governor Haruhiko Kuroda has repeatedly informed regarding the central bank maintaining monetary easing until both wages and prices increase steadily.

While nominal cash earnings saw a surge of 0.8% from the previous year in January, it is still far from the level the central bank has indicated is essential for sustainable price growth. In order to support a stable 2% inflation in Japan, Kuroda – who will be presiding over his last meeting this week – said a 3% wage hike would be necessary.

While about 80% of Japanese firms have expressed an interest in raising wages, the majority of them are not expected to reach the 5% increase target set by the country’s largest union federation – Rengo, Tokyo Shoko Research mentioned in its recent report.

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