Japan’s real wages decline for second consecutive year, pressuring household purchasing power

Japan’s Ministry of Health, Labour and Welfare reported a 2.2 per cent decline in the country’s monthly average real wages, continuing a two-year trend. This challenges households’ purchasing power amid inflation outpacing wage growth.

Japan’s Ministry of Health, Labour and Welfare revealed on Thursday that the country’s monthly average real wages, adjusted for inflation, experienced a 2.2 per cent decline in the last fiscal year ending in March. This marks the second consecutive year of decline, reflecting a significant challenge as inflation outpaces wage growth.

According to revised data, this decline represents the largest drop since fiscal 2014, when real wages fell by 2.9 per cent due to a consumption tax hike. The discrepancy between wage growth and inflation has been attributed to surging raw material costs and a weak yen, which increased the value of imports and consequently raised the prices of everyday goods, eroding households’ purchasing power.

Despite efforts by major Japanese firms to boost wages, with many agreeing to offer their highest monthly wage increases in over 30 years during spring negotiations, real wage growth has failed to keep pace with rising prices. Prime Minister Fumio Kishida’s government has been urging companies to implement pay hikes to stimulate a positive cycle of increased wages and consumer spending.

In nominal terms, the average monthly wage, inclusive of bonuses, saw a modest increase of 1.3 per cent to 332,533 yen ($2,120) in the fiscal year that ended in March. However, the consumer price index, used to calculate real wages, rose by 3.5 per cent during the reporting period, surpassing the growth in nominal wages and resulting in a decline in real wages.

Base pay experienced a marginal uptick of 1.3 per cent, while special pay, including bonuses, saw a 1.6 per cent increase in fiscal 2023. Conversely, unscheduled wages, including overtime pay, witnessed a slight decrease of 0.3 per cent.

The trend of declining real wages persisted in March alone, with inflation-adjusted wages experiencing a 2.1 per cent drop from the previous year. This marks the 24th consecutive month of decline, surpassing the previous record set during the global financial crisis triggered by the collapse of Lehman Brothers.