Japan’s Real Wages Continue to Decline, Challenging Policymakers and Economic Expansion Goals

According to recent data released by Japan’s labor ministry, real wages in March decreased by 2.5% compared to the previous year, marking two consecutive years of declines. This follows a slower pace of decline in February of 1.8%. The rise in consumer prices, which currently stand at 3.1% above the Bank of Japan’s 2% inflation target and price gains, outpaced the modest 0.6% growth in nominal wages observed in February. While Japan is witnessing early indications of a positive cycle of increasing wages and inflation, workers’ earnings continue to trail behind rising costs, highlighting the challenges faced by policymakers in persuading companies to increase salaries. Some economists predict that real wages will eventually turn positive during the 2024/25 fiscal year. Major Japanese corporations have proposed over 5% increases in staff salaries during this year’s annual negotiations, the highest level seen in approximately three decades. However, small enterprises with a majority of the workforce are falling behind, hindering the pace of wage rises. Non-regular workers, who make up around 40% of the workforce and receive lower pay, are also struggling. These factors are impeding policymakers’ aspirations of achieving sustainable economic expansion fueled by continuous inflation and strong wages, which are regarded as essential for normalizing monetary policy.