Real Wages Fall for 3rd Month in Japan, But Consumer Spending Rises

According to the Ministry of Health, Labour and Welfare in March 2025, Japan’s inflation adjusted real wages fell by 2.1% year-on-year for the third month in a row as inflation continues to hammer the purchasing power of households. This decline follows a revised 1.5% drop in February and a 2.8% decrease in January.

When wage growth was slowing, consumption held up well, increasing by 2.1% per year significantly better than the median market expectation of 0.2% increase. The seasonally adjusted month-to-month estimated consumer spending improved by 0.4% and that is impressive in light of market expectations of a 0.5% decline. The increase in spending came from utilities and entertainment. Spending on food items was lackluster due to price premiums on food.

In March, nominal wages or total average cash earnings, increased by 2.1% to JPY 308,572 ($2,132) , not as strong as the revised 2.7% increase in February. Regular pay or base salary, increased 1.3% as the same in the previous month while overtime pay, the most useful indicator of corporate activity, decreased by 1.1%, the first decrease since September and the largest decline since April last year.

The consumer inflation rate measured for the purpose of real wages including the price of fresh food, but excluding rent was 4.2% year-on-year in March, down slightly from February’s 4.3%, but still high due to increasing food prices.

For the future, economists expect that real wages may head up into positive territory on some combination of factors such as lower oil prices and a rising yen, which could ease import prices and bring inflation under control. Still, there are doubts that a global economic slowdown, potentially fueled by tariffs imposed by the United States, may weaken wage growth.

It is important to note that in the spring, big Japanese companies agreed in annual wage negotiations to average wage increases of more than 5%, the biggest increases in more than 30 years. These wage increases will start to be reflected in wage data from April.

While the data does show a mixed outlook, with real wages declining on one hand and fairly strong consumer spending on the other, it is difficult to ascertain the current economic outlook. The ongoing worry around higher inflation and global trade pressures leaves us in uncertain times.