Japan Sees 18th Consecutive Month of Decline in Real Wages in September

08 Nov, 2023

Japan Sees 18th Consecutive Month of Decline in Real Wages in September

In a persistent trend, Japan's real wages faced an 18th consecutive month of decline in September. Meanwhile, consumer spending saw an ongoing decrease as rising prices eroded households' purchasing power, intensifying demands from labor groups for higher wages. These wage trends in the world's third-largest economy are closely monitored by global financial markets. The Bank of Japan considers sustainable pay increases essential for reducing its ultra-loose monetary policy.

In September, inflation-adjusted real wages, which gauge consumer purchasing power, plummeted by 2.4 percent compared to the previous year. This followed a revised 2.8 percent fall in the preceding month, according to data from the Ministry of Health, Labor, and Welfare. The consumer inflation rate used to calculate real wages, factoring in fresh food prices while excluding owners' equivalent rent, slowed to 3.6 percent, the lowest figure since September of the previous year. Despite this, nominal pay growth in September reached 1.2 percent, following a downward revision of 0.8 percent in August, though only slightly better than in July.

Japan's largest labor organization, Rengo, is expected to demand pay increases of 5 percent or more, while the country's largest industrial union, UA Zensen, is set to seek a 6 percent wage increase during negotiations early next year.

The government, led by Prime Minister Fumio Kishida, recently unveiled a ¥17 trillion ($113.72 billion) economic stimulus package, which includes reducing annual income taxes and other levies by ¥40,000 ($267.58) per person, as well as providing ¥70,000 to low-income households.

Special payments saw a 6 percent year-on-year decline in September, following a revised 6.3 percent drop in August. It's worth noting that this indicator tends to exhibit volatility in months outside the twice-a-year bonus seasons of November and January, as well as June to August. On the other hand, base salary growth in September increased by 1.4 percent year-on-year, up from a revised 1.2 percent increase in the previous month, as indicated by the data.

Overtime pay, a measure of business activity, rose by 0.7 percent year-on-year in September, following a revised 0.2 percent gain in August.

Consumer spending data revealed a 2.8 percent year-on-year decrease in household spending for September, marking the seventh consecutive month of decline. This figure closely aligns with the median market forecast for a 2.7 percent drop. On a seasonally adjusted, month-on-month basis, household spending increased by 0.3 percent, compared to an anticipated 0.4 percent decline.

Although expenses related to eating out, transportation, and automobile-related spending showed increases due to more outings, spending on food, housing, furniture, and household items decreased, partly due to rising prices, as per a government official's explanation.

Major Japanese companies agreed to average pay raises of 3.58 percent this year, marking the highest increase in three decades. Average wages for Japanese workers had remained relatively stagnant since the burst of the asset bubble in the early 1990s, until this year's positive shift.