Japan's Real Wages Decline in January, Shifting Focus to Spring Wage Negotiations

Japan's real wages fell in January after two months of slight gains, data showed on Monday, just days before the country's major firms' annual rounds of pay negotiations conclude in the spring.

Nominal wages increased despite regular pay increasing for the first time in over 30 years and overtime pay increasing, but real wages—which policymakers view as essential to attaining consumption-driven economic growth—were dragged down by inflation at a two-year high.

With officials stressing the significance of evaluating the sustainability of wage growth after the central bank's January rate hike, it is generally anticipated that the Bank of Japan will maintain interest rates at its upcoming policy review on March 18–19.

Consumers' purchasing power is determined by inflation-adjusted real wages, which decreased 1.8% in January over the same period last year, according to data from the labor ministry. Following a revised 0.3% increase in December and a 0.5% increase in November, the decline occurred.

The consumer inflation rate used by the ministry to calculate real wages, which includes fresh food but excludes rent, increased to 4.7% year on year, the highest level since January 2023.

According to the data, regular pay, or base salary, increased 3.1% in January, following a revised 2.6% increase in December and representing the largest jump since 1992.

Overtime pay, a barometer of corporate activity strength, increased 3.1% after a revised 0.8% gain in December.

Special payments, primarily made up of volatile one-time bonuses, fell 3.7%. Total cash earnings, or nominal pay, increased 2.8% to 295,505 yen ($2,004) on average, slowing from December's revised 4.4% rise, owing primarily to a reduction in special payments.

Last week, Japan's largest labor group announced that its member unions were demanding an average pay increase of 6.09%, their boldest claim in more than 30 years.

In Japan, major firms' annual wage negotiations with labor unions conclude around mid-March, establishing a standard for non-unionized workers and smaller businesses.

According to a labor ministry official, the impact of these annual spring talks usually appears in wage statistics in April or later.