Decline in April real wages observed for the fourth consecutive month in Japan, as inflation takes its toll.
Tokyo:
Real wages in Tokyo, Japan took a hit once again in April, as wages failed to keep up with inflation, according to government data released on Thursday.
This continuous drop in real wages stirs up worries about the nation’s economic growth, particularly amid the uncertainty caused by U.S. President Donald Trump's aggressive tariffs.
Japanese policymakers and experts are worried that the international trade tensions could undermine the wage hike momentum and make it harder for the Bank of Japan to normalize monetary policy.
After a 1.8% slump in April, inflation-adjusted real wages (a significant indicator of households' spending power) plummeted for the fourth straight month, following a revised 1.8% decline in March and a 1.5% drop in February.
Although the consumer inflation rate slightly eased to 4.1% year-on-year in April, it maintained a consistent 4% level for five months running. This rate, calculated by excluding rent expenses, includes fresh food prices, but the significant rise in such prices is impacting workers' purchasing power negatively.
A labour ministry official stated, "Although wages are gradually climbing, prices remain high."
Regarding regular pay, it rose by 2.2% in April, marking the quickest increase in four months. Overtime pay inched up by 0.8%, reversing the decline from March, whereas special payments increased by 4.1%.
Total average cash earnings, or actual pay, rose by 2.3%, reaching 302,453 yen ($2,098.04) in April – the same increase as March.
Major Japanese firms agreed to average wage hikes surpassing 5% during the annual spring wage negotiations in March. Some of these pay raises were already implemented in April, with more to be reflected in future wage data, according to the labour ministry official.
Recent data suggests that inflationary pressure and nominal wage growth lagging behind inflation are the primary reasons for the fall in real wages in Japan. This dynamic poses concerns for the country's economic growth, as reduced consumer spending could slow economic activity, affecting GDP growth. Moreover, higher inflation expectations among consumers and businesses might lead to more price increases, creating a vicious cycle of inflation and reduced purchasing power.
($1 = 144.1600 yen)
Key Factors Contributing to the Drop in Real Wages:
- Inflationary Pressure: Consumer prices are surging faster than wages, weakening workers' purchasing power.
- Nominal Wage Growth vs. Inflation: Despite companies increasing wages, the growth in nominal wages hasn't matched inflation, and higher prices of essential and luxury goods are worsening the situation.
Potential Consequences for Japan’s Economic Growth:
- Consumer Spending: Decreased real wages could lead to reduced consumer spending, a vital component of Japan’s economy, potentially slowing economic growth.
- Economic Growth: Japan’s economic growth is heavily dependent on domestic consumption. Persistent falls in real wages might result in a slowdown in overall economic activity, affecting GDP growth.
- Inflation Expectations: The sustained increase in consumer prices may boost inflation expectations among consumers and businesses, prompting firms to raise prices further, leading to a vicious cycle of inflation and reduced purchasing power.
- Policy Responses: The Japanese government might need to consider policies to combat inflation while promoting wage growth that keeps pace with price increases, potentially involving monetary policy adjustments or fiscal measures to support household incomes.
- The ongoing drop in real wages in Tokyo, Japan could negatively impact global trade, as it potentially reduces the purchasing power of consumers, which may hinder the growth of domestic businesses and the overall economy.
- Amidst the increasing inflationary pressure and nominal wage growth failing to catch up with inflation, the finance sector might face challenges in assessing the risk associated with Japanese businesses, given the weakened consumer spending power and potential slower economic growth.
