Japan’s nominal wages rise in bright spot as outlook darkens
[TOKYO] Japan’s nominal wages rose more than expected in a positive sign for the domestic economy just as external headwinds related to trade are clouding the outlook.
Nominal cash earnings for workers climbed 3.1 per cent in February from a year earlier, with the pace accelerating from a revised 1.8 per cent in January, the labour ministry said on Monday. The reading beat economists’ estimate of 3 per cent.
A more stable gauge that generally irons out sampling inconsistencies showed base pay for full-time workers increased by 1.9 per cent, slowing below 2 per cent for the first time in 18 months.
In a reflection of persistent price pressure, real wages declined for a second straight month, falling 1.2 per cent from a year earlier.
Data due next week are expected to show that consumer prices excluding fresh food have now grown at a pace at or above the Bank of Japan’s 2 per cent target for a full three years through March.
Until recently, solid wage gains were among the positive factors keeping the BOJ on the path toward more gradual rate hikes as authorities sought to normalise policy settings.
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That narrative was abruptly upended last week by Donald Trump’s announcement of reciprocal tariffs, which will impose a 24 per cent across-the-board duty on Japanese goods. It’s a steeper tax than many had anticipated.
Economists have trimmed their growth projections for Japan and pushed back their rate hike expectations.
Until last week, most saw a hike by June or July, with the outside chance of a move when authorities next set policy on May 1. Markets indicate that traders now see a rate increase in September at the earliest.
Speaking after Trump’s announcement, BOJ Governor Kazuo Ueda stressed the need to monitor developments closely, while reaffirming the bank’s commitment to raise rates if inflation and economic growth hold firm.
Wages are expected to keep rising through at least the rest of the year, supported by strong outcomes in the latest round of annual labour talks.
Japan’s largest labour union federation Rengo reported last week that its members secured an average 5.42 per cent pay hike, the biggest in over three decades, topping economists’ earlier estimates of around 5 per cent.
Rengo also noted that small firms achieved a 5 per cent increase, the highest since 1992. That points to broad-based wage momentum, as the bulk of the nation’s company employees work at small firms. These increases will gradually show up in payrolls from April through the summer, according to a BOJ analysis.
A tight labour market is driving the upward pressure, as employers compete to attract and retain workers. Japan’s jobless rate dipped to 2.4 per cent in February, remaining one of the lowest among developed nations. Last year, a record 342 firms went bankrupt due to a manpower crunch, according to Teikoku Databank.
In its January outlook report, the BOJ anticipated continued nominal wage growth, citing deepening labour constraints.
Meantime rising consumer prices are fueling workers’ demands for better pay. In April, over 4,000 food products faced price hikes, the highest count since October 2023, according to another Teikoku survey.
Sticky inflation continues to weigh on real incomes, complicating policymakers’ efforts to create a virtuous cycle driven by resilient domestic demand. Japan’s households cut back on spending for the first time in three months in February.
With a key election approaching this summer, Prime Minister Shigeru Ishiba faces mounting pressure to address both economic and diplomatic concerns. In response to US tariffs, he pledged to protect domestic industries and jobs, while continuing to press Washington for an exemption.
To support the domestic economy, Ishiba’s government has introduced a raft of measures aimed at lifting incomes and easing cost pressures.
The initial budget, which Ishiba’s minority government managed to pass last week just a day before the start of the new fiscal year, includes a suite of price relief measures, such as extended petrol subsidies and income tax cuts.
Ishiba also vowed to outline steps to raise the minimum wage by May. He has previously set a target of increasing Japan’s minimum hourly wage to 1,500 yen (S$13.50) within five years, requiring an annual increase of over 7 per cent from the current 1,055 yen. BLOOMBERG
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