JAPANESE workers’ real wages fell in February for a 23rd consecutive month after consumer price growth accelerated, exerting a drag on spending.

Real cash earnings for workers dropped 1.3 per cent from a year earlier, the labour ministry reported on Monday (Apr 8), a steeper decline than in the previous month. Economists forecast a 1.4 per cent retreat. Nominal wages grew 1.8 per cent, in line with the consensus estimate.

The latest decline in real wages comes as growth in consumer prices excluding fresh food accelerated to 2.8 per cent in February, the quickest pace in four months.

Last fiscal year, Japanese workers received the largest wage increases in three decades, but the pace lagged inflation, which has stayed at or above the Bank of Japan’s (BOJ) 2 per cent target for almost two years. Households have cut back on spending every month for the last year as a result.

The BOJ is of the view that this dynamic is poised to shift, a key factor in its Mar 19 decision to end its zero rate policy with Japan’s first rate increase since 2007. Japan’s biggest umbrella group for unions reported that annual wage negotiations with companies resulted in commitments to raise pay by more than 5 per cent this fiscal year, the biggest increase in more than 30 years, and one that would comfortably outpace inflation, which is expected to slow to 2.3 per cent in 2024.

BOJ governor Kazuo Ueda said in a recent interview with local media that the bank ended its large-scale monetary easing programme because the certainty for attaining a virtuous cycle in which wage gains feed into demand-led price gains had risen to 75 per cent. He added that the likelihood of attaining the bank’s inflation target will steadily rise from summer through autumn.

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Some economists expect real wages to turn positive as soon as June, as salary increases start to be reflected in pay stubs.

In a bright sign for wage trends, Monday’s report included data for full-time workers that avoid sampling problems and exclude bonuses and overtime pay. The category showed growth of 2.1 per cent, staying at or above the 2 per cent threshold for a sixth month.

Japan’s ageing and greying society has led to chronic labour shortages, forcing companies to compete for increasingly scarce human resources. More than half of companies surveyed said they face a shortage of permanent staff, the highest since 2018, and last fiscal year the number of firms that went bankrupt due to insufficient workers doubled to 313, the most ever, according to Teikoku Databank.

Meanwhile, the outlook for prices remains uncertain. The government’s plan to end utility subsidies at the end of May is expected to push prices higher into the summer. Another potential factor is the yen. The currency has been fluctuating near a 34-year low against the US dollar, a development that will keep upward pressure on prices for imports of food and raw materials.

The BOJ will release its latest inflation forecasts when the board meets later this month. BLOOMBERG