On the 6th, the Ministry of Health, Labour and Welfare announced that Japan’s real wages in June, adjusted for price fluctuations, increased by 1.1% compared to the same month of the previous year, marking the first positive turn in 27 months. This article summarizes the background behind the longest period of negative wages turning positive, as well as future outlooks. (Ryuuta Atsumi)
Real Wages are an indicator that reflects the impact of price fluctuations on the nominal salaries that workers receive. They are calculated by dividing the total of base salaries and overtime pay by the Consumer Price Index, which indicates the price movements of goods and services. If prices rise more than wages, the real value of wages decreases, making this a measure of the workers’ purchasing power.
Q Why did we see a positive turn?
A The main reason is bonuses. The total amount of “special payments” primarily made up of bonuses surged by 7.6%, reaching 214,542 yen. This reflects significant wage increases from the spring labor negotiations, resulting in “regular pay,” which mainly consists of base salaries, also increasing by 2.3% to 264,859 yen, marking the highest growth rate in about 30 years. As a result, the nominal wage, often referred to as gross pay, grew by 4.5% to 498,884 yen, surpassing the Consumer Price Index (CPI, excluding imputed rent for owner-occupied housing) rise of 3.3%.
Q Will the positive real wages become stable?
A It’s uncertain. Taro Saito from the NLI Research Institute believes that this is a “temporary positive due to an increase in bonuses.” Although the number of businesses paying bonuses in June increased, it is possible that they simply advanced payments that are usually made in July or August. Additionally, real wages based on “fixed salary” excluding bonuses decreased by 1.0%, marking the 29th consecutive month of negative figures. There is a viewpoint that “fixed salary” is what directly impacts daily consumption and actual living.
For real wages to continue being positive, the growth of nominal wages needs to consistently outpace the CPI growth. However, the movement of the CPI itself is also difficult to forecast. Looking back at the expert forecasts for the CPI (excluding fresh food) in the fiscal year 2024, the projection in January last year was a calm 1.15%, but upward revisions have occurred repeatedly, and as of July this year, it stands at 2.52%.
Q The financial markets are in turmoil. Will this affect real wages?
A Not only stocks but also exchange rates that influence import prices are fluctuating wildly, which could affect real wages. If the yen appreciates significantly, it would suppress the profits of export companies, and if the yen depreciates greatly, it would put pressure on small and medium enterprises’ performance due to rising raw material costs. In any case, the momentum for wage increases may slow down, and there is a possibility that this could negatively impact the spring labor negotiations next fiscal year.