Recent economic data released by the Japanese government shows that real wages in Japan fell by 0.6% in August 2024 compared to the same period last year, marking the first decline in three months. This downward trend is mainly attributed to wage growth failing to keep pace with rising prices, reflecting the inflationary pressures and the complex relationship between inflation and wage growth in the Japanese economy.

The data indicates a decline in inflation-adjusted wages, an indicator viewed as an important barometer of consumer purchasing power. Previously, Japan’s real wages had seen their first increase in 27 months in June, but this growth momentum appears difficult to sustain. Analysts believe this is partly due to the fading effect of increased summer bonuses paid in June and July.

Despite the decline in real wages, Japan’s nominal wages continue to grow. Data from the Ministry of Health, Labour and Welfare shows that the average total monthly cash earnings per worker, including basic wages and overtime pay, increased by 3.0% to 296,588 yen (about $2,000), marking 32 consecutive months of growth. Notably, excluding bonuses and temporary wages, average wages rose by 3.0% to 264,038 yen, the largest increase in nearly 32 years.

This growth in nominal wages partly stems from this year’s labor-management negotiations, where Japanese companies agreed to the largest wage increases in 30 years, partly due to worker shortages. The government has also repeatedly called for wage increases, hoping to stimulate consumer spending through wage growth, thereby creating a virtuous economic cycle.

However, wage growth still seems unable to fully offset inflationary pressures. The government estimates that consumer prices rose by 3.5% in August, up from 3.2% in July. To address this situation, the government has resumed providing subsidies to curb electricity and natural gas prices since August to alleviate inflationary pressures. A government official stated that the rate of price increases might slow down in the coming months.

Meanwhile, household spending in Japan has also declined. Data shows that household spending in August fell by 1.9% in real terms compared to the same period last year, the first decline in two months. The average spending for households with two or more people was 297,487 yen. This decline was mainly reflected in transportation and communication expenditures (down 17.1%) and cultural and entertainment spending (down 6.9%). The decrease in transportation and communication spending was partly due to the temporary closure of some car dealerships caused by typhoons, while the decline in cultural and entertainment spending was partly due to people postponing travel plans following warnings of a possible major earthquake in the Nankai Trough.

Notably, despite the overall decline in household spending, the average monthly income of salaried households showed an upward trend. The average monthly income of salaried households with at least two people increased by 2.0% in real terms to 574,334 yen, marking the fourth consecutive month of increase. Want to learn more about the latest news on the Japanese economy? Subscribe to our Japan column or add Jaycy for professional consultancy providing unique insights and practical information!

Key points:

• Japan’s real wages fell by 0.6% in August, the first decline in three months, mainly because wage growth failed to keep up with price increases.
• Nominal wages continue to grow, with average wage growth reaching a 32-year high.
• The government is taking measures to curb electricity and natural gas prices to alleviate inflationary pressures.
• Household spending has declined, but the average monthly income of salaried households continues to increase.
• Wage trends and changes in household spending raise concerns about Japan’s economic outlook.
• The government hopes to stimulate consumption through wage growth, creating a virtuous economic cycle.
• Inflationary pressures and changes in consumer spending pose challenges to Japan’s economic recovery.