Japanese Real Wages Fall for 16th Consecutive Month

Introduction

Japanese real wages have continued to decline for the 16th month in a row, according to government data released on Friday. This decline is due to salaries not keeping up with rising prices, which has significant implications for the global financial markets. The Bank of Japan has emphasized the importance of sustainable wage increases as a prerequisite for deciding when and how to pull back on its ultra-loose monetary stimulus.

Key Findings

• Inflation-adjusted real wages fell 2.5% in July compared to the previous year, following a 1.6% decline in the previous month.
• The consumer price index used to calculate real wages remained flat at 3.9%, excluding owners’ equivalent rent but including fresh food prices.
• A survey by business lobby Keidanren showed that workers at major Japanese companies experienced a nearly 4% increase in wages this year.
• Prime Minister Fumio Kishida has been pushing for companies to increase wages and has announced plans for new stimulus measures to counter the impact of rising inflation.
• Nominal pay growth in July slowed to 1.3% after a 2.3% increase in June and a 2.9% rise in May, which was the fastest growth in almost three decades.
• Base annual salary in July increased by 1.6%, an improvement from the previous month’s 1.3% rise.
• Overtime pay, an indicator of business activity strength, rose 0.5% in July after a 1.9% increase in June.
• Special payments increased by 0.6% in July, compared to a 3.5% gain in the previous month. However, this indicator tends to be volatile outside of the twice-a-year bonus seasons.
• Separate data revealed that Japanese household spending in July experienced its largest drop in nearly 2-1/2 years, declining by 5.0% compared to the previous year.

Conclusion

The continuous decline in Japanese real wages has significant implications for the global financial markets. The Bank of Japan has emphasized the importance of sustainable wage increases, and Prime Minister Fumio Kishida has been pushing for companies to boost wages. The decline in real wages, coupled with the drop in household spending, highlights the challenges faced by the Japanese economy in achieving sustainable growth.