Japan FY2022 real wages fall most in 8 years, outlook seen brighter

Worker walks near a factory at the Keihin industrial zone in Kawasaki

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan’s inflation-adjusted real wages fell the most in eight years in the fiscal year 2022, government data showed on Tuesday, highlighting the pain of inflation eroding consumers’ purchasing power.

The yearly data brought home the importance of accelerating wage increases to outpace stubbornly high inflation, which is not the kind of stable and sustainable inflation that the central bank wants to see, in achieving its 2% price target.

However, analysts expect real wages to rebound this fiscal year as inflation eases, while the job market remains tight and the economy is in moderate recovery, paving the way for the Bank of Japan (BOJ) to taper its monetary easing.

Still, BOJ Governor Kazuo Ueda has repeatedly maintained that the central bank would continue monetary easing for the time being to support a fragile economy while anticipating inflation to slow to less than 2% later this year.

“Risks to inflation and wages are rather skewed to the upside,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “A combination of easing inflation, tight job market and solid company profits will lay the ground for monetary policy normalisation as early as this year.”

The labour ministry data also underscored the need for Prime Minister Fumio Kishida’s government to stoke a virtuous cycle of inflation and wage growth.

Nominal wages rose 1.9% in the last fiscal year ending in March, the fastest increase in 31 years, but inflation at 3.8%outpaced those pay gains, resulting in real wages falling 1.8% in fiscal 2022, the data showed.

It was the biggest yearly decline since fiscal 2014, when sales tax increases stoked broader rises in prices and pushed real wages down by 2.9%.

The data suggested that wages must rise even more to outpace inflation and help boost consumers’ purchasing power and private consumption that makes up more than half the economy.

Major firms have agreed to raise wages by nearly 4% this year, the fastest in three decades, in a sign cautious Japanese firms see the need of improving pay to secure skilled workers in the face of a labour crunch in the fast-ageing population.

Wages in Japan have barely grown over the past three “lost decades” since the burst of an asset-inflated bubble economy. In comparison, some other Group of Seven (G7) economies saw wages rising at a much stronger pace of about 1.4 times during the same period.

(Reporting by Tetsushi KajimotoEditing by Shri Navaratnam, Robert Birsel)