Japan’s base pay increases at the highest rate since 1995, highlighting BOJ policy

According to official data released on Friday, Japan’s nominal base wage increased at its highest rate in 28 years in May, fueling discussion about when the central bank will end its ultra-loose monetary stimulus.


Global financial markets have been closely monitoring Japan’s wage statistics because Bank of Japan Governor Kazuo Ueda views pay growth as a crucial indicator to take into account when deciding whether to change the country’s monetary policy.

According to labor ministry data, regular earnings increased 1.8% in May from a year earlier, which is the highest increase since February 1995. After an upwardly corrected 0.8% gain in April, the robust base pay growth increased workers’ total cash earnings, or nominal wages, by 2.5% in May.

According to economist and professor at Hosei University Hisashi Yamada, “the BOJ could dismantle monetary easing framework from the Kuroda era if inflation stabilizes around 2% and nominal wages accelerate to 3% to 3.5%.”

According to the largest labor union in Japan, Rengo, major corporations have agreed to average pay increases of 3.58% this year, the most since 3.9% in 1993.

Over the coming months, government wage figures will gradually reflect the outcome of the spring “shunto” labor negotiations, according to a labor ministry official.

Even still, real earnings decreased 1.2% in May, the 14th month in a row that they have decreased year over year, as persistent consumer inflation outpaced nominal pay growth and reduced household purchasing power. According to analysts, real wages will continue to decline for the rest of 2023.

Separate statistics released on Friday revealed that household spending in Japan decreased by 4.0% in May compared to the same month a year prior, exceeding the median market prediction of a 2.4% reduction. The data revealed that spending on a range of things, including food, clothing, and transportation, was down.

Household spending decreased 1.1% in comparison to an anticipated 0.5% gain on a seasonally adjusted month-to-month basis, marking the fourth consecutive month of drop.

Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute, stated that the effects of consumer price inflation are becoming more pronounced in household spending, negating the benefit to Japan’s consumption from reduced coronavirus restrictions.

BOJ Deputy Governor Shinichi Uchida asserted in an interview with the Nikkei newspaper that the central bank must support the economy through loose monetary policy.

The longer-than-expected price inflation and labor shortage, according to Taro Saito, executive research fellow at NLI Research Institute, would likely result in salary rise that is largely similar to this year’s during the spring labor negotiations.

But considering the precarious state of the world economy, he added, “the biggest risk to the scenario is if the economy itself remains strong until next spring.”