Japanese workers experienced the fastest increase in average base pay in 31 years this May, with a 2.5% rise due to significant wage hikes from annual negotiations. However, inflation-adjusted real wages fell for the 26th consecutive month, driven by a weakening yen and higher import costs, complicating the Bank of Japan’s (BOJ) efforts to normalize monetary policy.
Wages are crucial in determining the timing of potential interest rate hikes by the BOJ. Governor Kazuo Ueda has emphasized that sustained wage increases must accompany rising prices to achieve the bank’s 2% inflation target. The 2.5% wage increase in May, up from a revised 1.6% in April, marks the fastest growth since January 1993, around the time Japan’s asset bubble burst.
“The data highlights Japan’s increasing wage momentum. While real wages continue to fall, they will likely start rising in July,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
Nominal wages, or average total cash earnings per worker, rose 1.9% to 297,151 yen ($1,850), the highest year-on-year increase in 11 months. However, inflation-adjusted wages declined by 1.4% in May, following a revised 1.2% drop in April.
Japan’s labor shortage is intensifying, leading to broader wage increases. At firms with 30 or more employees, wage hikes outpaced inflation for the first time in 26 months. However, when very small firms with five or more workers were included, pay hikes still lagged behind inflation. Hourly pay for part-time workers surged by 4.0% in May, surpassing the 2.7% gain for full-time staff.
An example of significant gains for part-time workers is seen at the Hotel Mercure in Sapporo, which raised hourly pay for part-time workers by an average of 15% this year, compared to a 4% increase for full-time workers. “At this time of labor shortages, we need to offer high wages to attract part-time workers,” said Kiyohiko Bando, the hotel manager.
Tomomi Otake, who recently returned to part-time work at the hotel after a five-year hiatus, cited attractive pay, flexible shifts, and the need to fund her children’s education as her motivations. Part-time workers comprise 30% of Japan’s total workforce and typically earn about one-third of what salaried workers make, according to Hisashi Yamada, a senior economist at Japan Research Institute. “As wage hikes broaden to part-time workers, that will have a trickle-down effect on consumer spending by boosting their purchasing power,” he noted.
