Is Japan signalling a future of falling real wages for all of us?

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via notayesmanseconomics:

This summer was badged as being a time when we would see a change in something which has existed since the early 1990s. It has been a major theme of Japanese policy since the original plans of Abenomics in 2013. Abe-sans “three arrows” were supposed to end deflation in Japanese wages. So let us head for our first signal of what happened in this year’s main or Shunto pay round.

Japanese workers’ base salaries rose the most since 1993, a jump that supports the case for the Bank of Japan to consider raising interest rates even as real wages continue to fall.

As you can see Bloomberg seems to add the real wages fall as rather an after thought. But let us for the moment stay with its analysis.

Base pay increased 2.5% in May from a year ago, the fastest growth since 1993, outpacing the 1.9% gain in the headline figure, the labor ministry reported Monday.

Now we get some cherrypicking of the numbers via a switch to base pay. Those who follow my breakdowns of inflation releases will know that this is never a good sign. In fact we get rather a cypher of what we often see there as we are told if we exclude the things that have not risen we have a record rise! The emphasis is mine

A more stable measure for full-time workers that avoids sampling issues and excludes bonuses and overtime pay rose by a record 2.7%, a firmer indication of improvement in the overall wage trend.

Any Japanese worker doing some overtime or hoping for some bonus pay is unlikely to be so sanguine. Also anyone with even a minor amount of maths ability must realise that the consequences if you are not part of the group below.

The data come after the nation’s biggest umbrella group for unions said it secured an average wage increase of 5.1% for its workers this year, the biggest gain since 1991.

Anyway if we switch to actual pay the numbers were a disappointment.

The headline cash earnings figure for May came in weaker than a forecast 2.1%, though the report showed the result was dragged down by falling bonus payments. Bonuses and overtime pay mask the overall trend.

What we are seeing here is something very familiar to those who have followed my updates over the years. There are announcements to grab the headlines on wages but they do not reflect the overall position. Which leads to a rather laughable claim that if you exclude part of pay the trend is higher.

Bonuses and overtime pay mask the overall trend.

Real Wages Fall

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If we switch from how foreign news organisations are reporting this to the Japanese we see rather a change. Here is The Mainichi.

TOKYO (Kyodo) — Japan’s real wages in May fell 1.4 percent from a year earlier, declining for a record 26th straight month, as the sharpest base wage growth in 31 years was offset by inflation, government figures showed Monday.

As they point out the situation is if anything worse.

The drop in May was larger than a revised 1.2 percent fall in April, with higher material costs and a weakening yen pushing up import costs, data from the Ministry of Health, Labor and Welfare showed.

For those of you wondering what the pay levels are here is one anyway.

The impact of pay increases was seen in nominal wages, with average base pay up 2.5 percent at 263,539 yen ($1,600), the fastest rise since January 1993……Nominal wages, or the average total monthly cash earnings per worker including base and overtime pay, were up 1.9 percent at 297,151 yen.

So the underlying trend the journalists are so keen on exclude around 13% of total wages. Maybe someone should deduct it from their pay and see how important they think it then is.

If you wish to see the two extremes they are below.

By industry, monthly pay in the construction sector saw the biggest rise of 7.2 percent, while “compound services” such as postal services saw the sharpest fall of 6.3 percent.

Consumption Problems

The essential issue of The Lost Decade period has been a lack of domestic demand. This is where the real wage falls have really impacted. Japan has a very low unemployment rate so in general there is work but the issue is what do you get paid for it? That leads onto weak demand and of course at the start of this month we saw this.

Separately, a revision to historical data showed on Monday that Japan’s real GDP shrank an annualized 2.9% in January to March, compared with an earlier estimate of a 1.8% contraction.

The GDP for the third and fourth quarters of last year were also revised down. ( The Japan Times)

Japan is far from the only country having trouble measuring construction output. But we see that domestic demand was revised lower from -0.1% to -0.4%. Also whilst there was GDP growth in fiscal year 2023 it was revised lower from 1.2% to 1% with domestic demand revised from -0.2% to -0.4%. These all add to the major Lost Decade issue. In a nutshell weak wages growth flows into weak domestic demand and that is why GDP has struggled. As it happens net exports fell at the opening of 2024 adding to the problem.

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The Bank of Japan released its consumption activity index on Friday The numbers can be looked at in several ways. The short-term trend is shown by the fact that growth in the latest three months adds up to zero. But the longer-term issue is what I am driving at as we see an index set at 100 in 2015 at 98.5.That is bad enough but it is after the first Consumption Tax rise and before it the numbers were higher.


This is like the song by The Whispers.

And the beat goes onJust like my love (everlasting)And the beat goes onStill moving strong, on and on

There are efforts to convince us that the wages situation in Japan has changed but the reality is after 11 years of that sort of reporting the outlook for any real wages rise is Definitely Maybe at best. Any inflation fall may make it look like that but of history is any guide wage growth will be cut. Plus at the moment there is something else affecting the Japanese on an individual level which is that at 161 or so the Japanese Yen does not go as far as it did. Let us hope that it produces a strong tourist season to help out.

The next issue comes from The Vapors.

I’m turning Japanese, I think I’m turning JapaneseI really think soTurning Japanese, I think I’m turning JapaneseI really think so

If we look at China we see so many of the same issues. Germany is another exporting nation hitting trouble with wages and domestic demand. These days Greece is being presented as a triumph which ignores the fact that real wages fell by around a quarter first. My home country the UK has seen real wages struggle for some time. Plus central bankers seem determined to act to keep wage growth ( apart from their own) low. So there is a large international dimension in play.

Yet those with assets have reaped the gains.

This week, the Nikkei and the broad-based Topix surpassed previous records to hit fresh all-time closing highs on Thursday. The Topix notably breached a 34-year record set in December 1989. ( CNBC )


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