Japan’s average base pay rose by 2.5 percent in May, the fastest pace in 31 years, as companies offer pay increases in annual wage negotiations. Meanwhile, part-time workers saw significant gains. However, inflation-adjusted real wages declined for the 26th month straight as the weakening yen and higher commodity prices raised import costs, further posing challenges to the central bank’s monetary policy normalization efforts.
Impact on monetary policy
Wages in Japan signal how soon the central bank could raise interest rates. Bank of Japan governor Kazuo Ueda stated recently that broad-based increases in wages must accompany rising prices for inflation to durably meet the bank’s 2 percent target.
The 2.5 percent annual increase in May was bigger than the revised 1.6 percent increase in April. Moreover, it marked the fastest pace since January 1993, around the time when Japan’s asset bubble burst.
Read: Japan faces shortfall of nearly one million foreign workers by 2040 to meet growth goals
Part-time wages surge
Japan’s nominal wages rose 1.9 percent to 297,151 yen ($1,850), growing faster than the previous month’s 1.6 percent increase and marking the highest year-on-year increase in 11 months. However, when adjusted for inflation, wages fell 1.4 percent in May after a revised 1.2 percent decline in April.
There were signs that Japan’s intensifying labor shortage is leading to broader-based wage rises. Wage hikes at firms with 30 or more employees 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.
In addition, hourly wages for part-time workers rose 4 percent annually in May, outpacing the 2.7 percent increase for Japan’s full-time staff. This increase is due to the shortage of staff which has pushed Japanese businesses to raise hourly wages to attract more part-time workers. Notably, part-time workers make up 30 percent of Japan’s total workforce.
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