COVID-19 depresses real wages in Japan

Household spending continues to decline as a constricted Japanese labour market sees real wages dropping at its fastest rate in five years.
By: | July 7, 2020

Inflation-adjusted real wages in Japan fell by 2.1% in May from a year earlier, Japan’s labour ministry has reported. This represents the biggest drop since June 2015, as income continues to be negatively impacted because of the COVID-19 pandemic.

“The impact from the coronavirus led to a reduction in overtime pay, which caused real wages to fall a lot,” a labour ministry official said.

Overtime pay, which is seen in Japan as a key measure of the strength of business activity, fell by 25.8% from a year earlier, a ninth consecutive monthly decline and the sharpest decline since comparable data became available in January 2013.

With real wages a gauge of household spending power, Japan has also recorded the largest fall in household spending on record, which slumped 16.2% in May from a year earlier. This followed an 11.1% decline in April.

Recovery is also expected to be sluggish as consumers continue to tighten purse strings and unemployment continues to raise.

READ: Japan’s unemployment rate could be higher than reported

Earlier this month, a “tankan” survey conducted by the Bank of Japan indicated that Japanese manufacturers have not been as pessimistic about the economy since the 2009 global financial crisis.

The sentiment index for big manufacturers plunged to -34 in June from -8 three months ago, while for big non-manufacturers, the sentiment index worsened to -17 from +8 in March. Both indicators are the lowest level registered since June and December 2009, respectively.