Japan’s two-year real wages decline continues, slips by 2.5% in March

Japan’s real wages: According to data from Japan's labour ministry released on Thursday, inflation-adjusted real wages in March experienced a 2.5 per cent decline compared to the previous year, marking the continuation of a two-year downward trend.

The pace of decline accelerated from the previous month, where real wages had dropped by 1.8 per cent, primarily due to the faster increase in living costs compared to nominal wage growth.

Despite early indications of a positive cycle with rising wages and inflation, the current scenario highlights the persistent challenge of aligning workers' earnings with the escalating costs of living, posing a significant hurdle for policymakers seeking to encourage companies to increase salaries.

Some economists anticipate a reversal in the trend, foreseeing real wages to turn positive at some point during the 2024/25 fiscal year.

Nominal wages, representing the average total cash earnings per worker, expanded by 0.6 per cent to 301,193 yen ($1,940.30) in March, a deceleration from the 1.4 per cent growth observed in February.

Conversely, consumer prices in March registered a 3.1 per cent increase compared to the previous year, slightly lower than February's 3.3 per cent rise, yet remaining above the Bank of Japan's 2 per cent inflation target.

Within total cash earnings, regular pay, which forms the basis of the basic salary, rose by 1.7 per cent, while overtime pay saw a decline of 1.5 per cent for the fourth consecutive month.

Special payments, including bonuses and additional benefits, witnessed a major 9.4 per cent year-on-year decrease in March.

While major Japanese corporations have offered substantial increases of over 5 per cent in workers' monthly pay during this year's annual labour negotiations, smaller firms, which employ the majority of workers, have been slower to implement such raises. Additionally, the substantial portion of low-paid non-regular workers, constituting about 40 per cent of the workforce, further contributes to the challenge of boosting overall wage levels.

The persistently modest wage growth dampens hopes among policymakers for achieving sustained economic growth driven by robust inflation and solid pay, which is considered essential for the normalisation of monetary policy.

(With Reuters inputs)