Lazy eyes listen
Japan’s real wages fell the most since 2014 last month, as inflation outpaced income growth, according to the country’s labor ministry on Tuesday.
Earnings fell 4.1% year on year in January, marking the tenth consecutive month of decline and undermining the government’s efforts to achieve 2% inflation accompanied by strong wage growth.
In December, nominal wages in Japan increased by the most in nearly 25 years, thanks largely to winter bonuses. However, the temporary increase was followed by a worse-than-expected drop, indicating that the country’s economy is still far from the cycle in which both wages and prices rise steadily.
“It appears that many firms attempted to respond to inflation with one-time measures such as lump-sum payments rather than wage increases,” said Toru Suehiro, chief economist at Daiwa Securities. “The impact of December bonuses and inflationary allowances was expected to spill over into the non-bonus portion of wages,” he added.
According to Bank of Japan Governor Haruhiko Kuroda, a 3% increase in base pay is required to keep the country’s inflation target of 2%. Meanwhile, the 0.8% increase in nominal cash earnings in January was well below the level required for long-term growth.
Japan’s trade unions are reportedly demanding a 4.5% wage increase in spring pay negotiations with companies, the largest increase since the 1990s. However, economists do not anticipate a significant pay increase as a result of the upcoming negotiations.
“We anticipate a 2.8% increase in base pay for 2023, up from 2.2% last year,” said Bloomberg’s lead economist Yuki Masujima.
This comes as Japanese consumers face the most rapid price increases in four decades. Core inflation, which excludes volatile food prices.