Real wages in Japan fell in September for the 18th consecutive month, and consumer spending continued its months-long downward trend. Increasing costs are reducing households' buying power and are very likely to increase the pressure from labor groups for greater wage hikes.
Global financial markets closely monitor salary changes in the third-largest economy in the world. The Bank of Japan believes that one of the requirements for removing its extremely weak monetary stimulus is sustainable pay rises.
In September of this year, inflation-adjusted real wages, a measure of consumer purchasing power, declined 2.4% when comparing to the same month in the previous year, after the previous month's decline had been revised down to 2.8%, according to statistics released by the government's Ministry of Health, Labour, and Welfare.
At 3.6%, the rate of consumer inflation — which officials use to calculate real wages — dropped to its lowest point since September of last year. This measure accounts for the price of fresh food but excludes owners' equivalent rent.
September's nominal wage increase was 1.2%, which was just marginally better than that of July, after a 0.8% downward revision in August.
Major corporations agreed to pay increase of 3.58% on average this year, the biggest wage rise in thirty years. Up until this year, the average salary of Japanese workers has remained essentially unchanged since the asset bubble broke in the early 1990s.
In early 2024, negotiations will see UA Zensen, the country's largest industrial union, seeking a 6% wage hike, while Rengo, Japan's largest labor organization, is predicted to seek wage increases of at least 5%.
On the other hand, other economists remain pessimistic about the likelihood of a consumption rebound.
According to Shunsuke Kobayashi, the chief economist of Mizuho Securities, there is no reason for the nominal salaries to increase after the end of August, which is when the increase from this year's spring labor negotiations is typically reflected.
Furthermore, Kobayashi stated that even if higher salaries are agreed upon for the following year, there is a chance that inflation might re-accelerate if the government decides not to continue providing fuel and electricity subsidies.
Last week, the administration of Prime Minister Fumio Kishida drafted a 17 trillion yen economic stimulus plan, or about $113.72 billion. It includes a 40,000 yen ($267.58) per person reduction in yearly income tax along with other taxes as well as a 70,000 yen payment to low-income families.
After declining 6.3% in August, special payments decreased 6% in September compared to the previous year. While the indicator is not in the twice-yearly bonus seasons of November and January or June to August, it tends to be erratic.
The data indicated that base wage growth increased by 1.4% year over year in September, after a revised 1.2% gain in the month prior.
September saw a 0.7% year-over-year increase in overtime pay, a proxy for business activity, after an adjusted 0.2% increase in August.
Sluggish spending
Separate figures released on Tuesday revealed that household spending fell 2.8% in September compared to the same month a year earlier, marking a seven-month decline. Roughly speaking, it followed the 2.7% fall predicted by the market.
Monthly household spending increased by a seasonally adjusted 0.3%, compared with a projected 0.4% decline.
According to a government official, expenditure on housing, furniture, food, and household items declined somewhat as a result of growing costs, while spending on eating out, transportation, and car-related expenses increased as a result of more outings.