Japan sees fastest base pay gains in 32 years in boost for Bank of Japan
The data indicate that underlying wage trends remain solid even as workers continue to see their household budgets crimped by persistent inflation
[TOKYO] Japan’s workers saw their base pay rise at the fastest clip in 32 years, a result that sends a positive signal to the Bank of Japan (BOJ) as it weighs the prospects for demand-driven economic growth.
Base pay rose by 3.1 per cent in January from a year earlier, the largest advance since October 1992, the labour ministry reported on Monday (Mar 10).
Also, a more stable measure of wage trends that avoids sampling problems and excludes bonuses and overtime showed wages for full-time workers grew by 3 per cent, topping that threshold for the first time since July.
Growth in nominal cash earnings slowed in January to 2.8 per cent from the previous year, an outcome that missed the 3 per cent consensus forecast. The data highlighted the impact of price growth, as real cash earnings fell 1.8 per cent, the largest drop since March 2024, and deeper than economists’ forecast of a 1.6 per cent retreat.
Taken as a whole, the data indicates that underlying wage trends remain solid even as workers continue to see their household budgets crimped by persistent inflation.
The figures will therefore likely keep the BOJ on track for gradual rate increases as authorities navigate between sustaining growth momentum and normalising policy settings by taking the rate higher towards neutral.
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The figures come as annual wage negotiations between unions and employers are set to culminate later this week with the initial results of this year’s deals.
Japanese workers under the umbrella of Rengo, the largest group of unions, last week demanded the largest pay hike since 1993, signalling that confidence is strong after last year’s talks resulted in the biggest increases in more than three decades.
Their compensation demands also reflect impatience with rising costs of living. Consumer price gains accelerated more than expected in January as fresh food prices rose at the fastest pace in two decades, with the overall inflation rate hitting 4 per cent.
The BOJ raised its benchmark interest rate to 0.5 per cent in January, and the board is expected to hold settings steady when it meets next week as officials assess the impact of that move. Consensus sees the next increase coming in the summer, while some economists have flagged the risk of a hike as early as May 1.
BOJ governor Kazuo Ueda and other board members have reiterated the bank’s commitment to keep raising rates if the price outlook materialises, and one question will be whether underlying wage strength fuels consumer demand. Data due to be released on Tuesday are expected to show household spending increased in January by 3.7 per cent, the biggest rise since August 2022.
How to mitigate the impact of rising prices is a key concern for Prime Minister Shigeru Ishiba, whose predecessor stepped down partly due to rising frustration over prices.
Ishiba and the Liberal Democratic Party face a test with a national election this summer, after a poor showing by the party in an October poll weakened his position. So far his government has introduced several price relief measures, including the release of emergency rice stockpiles after prices for the grain surged.
Ishiba’s minority government also decided to raise the threshold for minimum tax-free income to 1.6 million yen (S$14,437) from 1.03 million yen to boost disposable incomes.
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