Japan’s Nov real wages down for 20th straight month

A shopping district is pictured in Tokyo, Japan Oct 1, 2019. REUTERS/Kim Kyung-Hoon/File photo

TOKYO  – Japanese workers’ real wages kept shrinking for a 20th month in November, data showed on Wednesday, raising fresh alarm for the sustainability of the country’s economic recovery as firms enter the period of annual pay negotiation with labor unions.

Japan’s wage trend draws an unusual amount of attention from financial markets worldwide since the Bank of Japan regards pay and inflation outlooks as the most important data in considering the dismantling of its negative interest rate policy.

Inflation-adjusted real wages, a key determinant of consumer purchasing power, fell 3 percent in November from a year earlier, faster than a 2.3-percent decrease in October, data from the labor ministry showed.

The consumer inflation rate the government uses to calculate real wages, which includes fresh food prices but excludes owner’s equivalent rent, decelerated to 3.3 percent, the lowest since July 2022, thanks to falling fuel costs and moderating food price hikes.

READ: Inflation in Japan’s capital keeps slowing, takes pressure off BOJ

However, nominal pay grew a paltry 0.2 percent in November, the slowest in nearly two years, after a 1.5-percent increase in October.

The main culprit behind the weak pay growth was a 13.2-percent contraction in special payments, which gives an early glimpse into the winter bonuses companies paid to employees. But the indicator tends to be very volatile this time of year due to the small sample size collected during the year-end period.d

“It’s too early, if not misleading, to judge the winter bonus trends from November’s special payments figure alone,” a labor ministry official said.

Collective pay talks

Regular or base salary in November rose by 1.2 percent year-on-year, almost the same as a revised 1.3 percent increase in the previous month. Overtime pay, an indicator of business activity strength, increased by 0.9 percent year-on-year, the first gain in three months.

Japanese businesses are entering the collective pay talks season known as “shunto”, which culminates in March. Last year, major firms struck a deal with unions that resulted in the largest pay rises – 3.58 percent – in three decades amid four-decade-high inflation.

READ: BOJ’s Ueda keeps wage hike hopes, quake dampens bet of Jan policy shift

For the 2024 shunto, the country’s biggest labor group Rengo has said it will ask for at least a 5-percent pay increase, including at least 3 percent base salary growth, to cushion the lasting blow from higher living costs.

Meanwhile, Tokyo’s consumer inflation, a leading indicator of nationwide price trends, showed a further slowdown on Tuesday, raising hopes for real wages to rebound eventually, which will provide supporting ground for the Bank of Japan’s monetary policy normalization.