Japan’s real wages fell by 4.1% in January, marking the steepest decline in nearly nine years as four-decade-high inflation eroded consumer purchasing power, according to official data released Tuesday.
This drop in inflation-adjusted wages, the largest since May 2014, reflects the impact of high consumer prices on households and poses a challenge for policymakers trying to revive an economy still recovering from the COVID-19 pandemic.
The wage trends in Japan, the world’s third-largest economy, are closely watched, as the Bank of Japan (BOJ) officials have emphasized that wage hikes, alongside a 2% inflation rate, are crucial for scaling back the central bank’s loose monetary policy.
The BOJ is expected to maintain its ultra-low interest rates in its upcoming policy review on Friday, as it awaits a leadership change that could eventually lead to adjustments in outgoing Governor Haruhiko Kuroda’s aggressive stimulus measures.
Despite the current decline, real wages may have bottomed out in January due to government subsidies on electricity and gas charges taking effect in February and the easing of commodity price hikes, said Azusa Kato, senior economist at BNP Paribas Securities.
Kato added that with wage increases gaining momentum ahead of the annual labor negotiations, the BOJ might face pressure to adjust its yield curve control as early as this week. Even if no immediate action is taken, the bank will remain under scrutiny.
Major Japanese companies, including Toyota, Nintendo, and Fast Retailing, have responded to policymakers’ calls and union demands by announcing plans for historic pay increases.
Although Japan’s economy avoided a recession in the fourth quarter, its rebound was weaker than expected, slowing its recovery from the pandemic’s impact.
Total cash earnings, or nominal wages, rose by just 0.8% year-on-year in January, significantly lower than the revised 4.1% growth seen in December, when substantial one-off winter bonuses temporarily boosted salaries.
The modest wage growth in January lagged behind the 5.1% consumer inflation rate used to calculate real wages, excluding owners’ equivalent rent.
Japan’s core consumer inflation, which excludes volatile fresh food prices but includes oil products, is currently running at 4.2%, the fastest pace since 1981.
Overtime pay, an indicator of business activity strength, grew by only 1.1% year-on-year in January, marking its weakest growth in 22 months.
Special payments, which tend to fluctuate outside the bi-annual bonus seasons of November to January and June to August, fell by 1.7% in January, following a revised 6.5% growth in the previous month.
The significant decline in real wages amid persistent inflation poses challenges for Japan’s economic recovery efforts, despite early signs of wage hikes and potential policy shifts by the Bank of Japan.
