Japan’s real wages see steepest drop in eight years

Driven by inflation, the gap between nominal and real wages is widening, prompting the government to push for wage growth across organisations.
By: | May 25, 2023
Topics: Compensation and Benefits | Japan | News

Japan experienced the largest decline in inflation-adjusted real wages in eight years during the fiscal year 2022, as the government continues to step up efforts to accelerate wage increases outpace high inflation levels, which do not align with the Bank of Japan’s (BOJ) desired stable and sustainable inflation target of 2%.

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

According to data from Japan’s labour ministry, nominal wages rose by 1.9% in the fiscal year 2021, marking the fastest increase in 31 years. However, with inflation at 3.8%, real wages fell by 1.8% in fiscal 2022. This decline represents the largest yearly decrease since fiscal 2014 when sales tax increases pushed real wages down by 2.9%.

READ MORE: More organisations in Japan plan to raise wages in 2023

With private consumption contributing to over half of Japan’s economy, Prime Minister Fumio Kishida and his government has been pushing for wages increases to outpace inflation and boost consumers’ purchasing power.

Recognising the need to secure skilled employees amid a labour shortage in Japan’s ageing population, major organisations in Japan have committed to raising wages by nearly 4% in 2023, marking the fastest increase in three decades.