**Japanese Wages Rising at Fastest Pace in 31 Years**
On Monday, data for the month of May showed that average basic wages in Japan are increasing at the fastest rate in 31 years. This indicates that the significant pay raises proposed by companies during annual wage negotiations are starting to have an impact on Japanese households, potentially laying the groundwork for further interest rate hikes.
Data from the Ministry of Health, Labour and Welfare revealed that in May, basic wages (excluding bonuses) grew by 2.5% year-on-year, surpassing the revised 1.6% from April and marking the fastest growth since 1993. This growth also exceeded the 1.9% increase in nominal wages (average overall cash income).
The more stable indicator for full-time workers (which avoids sampling issues and excludes bonuses and overtime pay) increased by 2.7%, providing a stronger signal of significant overall wage improvement.
This reflects the substantial pay raises agreed upon between labor and management during the annual wage negotiations known as “Shunto” in Japan, which are beginning to take effect.
While the depreciation of the yen and rising commodity prices have pushed up import costs, leading to a 1.4% decrease in real wages after adjusting for inflation, marking the 26th consecutive month of decline, analysts still believe that the new data strengthens confidence in demand-driven benign inflation and sets a foundation for the Bank of Japan to continue raising interest rates.
Wages are a crucial factor in determining when the Bank of Japan will raise interest rates. The Governor of the Bank of Japan, Kazuo Ueda, stated that widespread wage increases must be accompanied by rising prices in order to sustainably achieve the Bank’s 2% inflation target.
Yoshimasa Maruyama, Chief Market Economist at SMBC Nikko Securities, analyzed, “The data highlights the momentum of wage growth in Japan.”
He told Reuters, “Although real wages continue to decline, it is highly likely that they will start increasing in July.”
In May, nominal wages rose by 1.9%, reaching 297,151 Japanese yen (about $1,850), showing a faster pace compared to the 1.6% increase from the previous month and marking the highest year-on-year growth in 11 months.
There are indications that Japan’s worsening labor shortage is resulting in broader wage hikes.
For companies with 30 or more employees, wage increases have surpassed the inflation rate for the first time in 26 months. However, when including small businesses with five or more employees, wage growth still lags behind the inflation rate.
In May, hourly wages for part-time workers increased by 4.0% year-on-year, exceeding the 2.7% increase for full-time workers.
An example of a significant increase in part-time worker income is Hotel Mercure in Sapporo, where hourly wages for part-time workers have been raised by an average of 15% this year, with full-time workers seeing an increase of over 4%.
“In this period of labor shortage, we need to offer high wages to attract part-time workers,” said hotel manager Kiyohiko Bando to Reuters.
Part-time workers make up 30% of Japan’s workforce. Hisashi Yamada, an economist at a Japanese research institute, stated that their average income is one-third of that of regular salaried workers.
He said, “As wage increases extend to part-time workers, this will boost their purchasing power and have a trickle-down effect on consumer spending.”