Japan’s Wage Woes: Real Earnings Fall for 23rd Month Amid Inflation Bite


Japan’s Wage Woes: Real Wages Plummet for Over Two Years

A Japanese 10,000-yen banknote arranged in Kyoto, Japan, on Thursday, Nov. 2, 2023.

Japan’s real wages have taken a beating for 23 consecutive months, dealing another blow to the average consumer’s spending power. LA News Center reports that real wages nosedived by 1.3% in February year-over-year, widening the gap from January’s revised 1.1% decline.

Despite the drop in real wages, nominal wages managed to rise by 1.8%, boosted by a 2.2% increase in base pay. However, special payments, which include bonuses and other one-time payouts, saw a 5.5% year-on-year dip.

These figures are a stark reminder of the challenges faced by Japanese workers as record-high inflation continues to erode their purchasing power. In a glimmer of hope, some unions in Japan recently secured their highest wage increases in 33 years, but the benefits are limited to a small fraction of the workforce.

Unfortunately, this wage disparity between unionized workers and those in small and medium enterprises could hamper the formation of a “virtuous cycle” between wages and prices, leaving the latter vulnerable to further increases while wages remain stagnant.

Will the Bank of Japan Intervene?

In response to these worrying trends, Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corporation, suggests that the pay increases for unionized workers may eventually trickle down to non-unionized workers and broader segments of society. He believes these wage hikes are in line with the BOJ’s desired “virtuous cycle.”

Although real wages continue to fall, BOJ policy experts like Suzuki believe that negative interest rate and Yield Curve Control (YCC) policies will not be reinstated since the current inflationary pressures differ from those in the past.

Suzuki urges investors to keep an eye on upcoming inflation, wage, and consumption data, particularly in June and July, to gauge the effectiveness of the BOJ’s policies.

Historically, Japan’s fiscal year begins on April 1, marking a time for significant announcements like wage hikes. Economists will be closely monitoring these changes and their impact on real wages and consumption.

Suzuki anticipates that Japan’s central bank, the BOJ, will hold off on policy adjustments until early autumn. SMBC, a leading financial institution, predicts that the next rate hike may occur in October.