(July 7): Japanese wages climbed again in May, comfortably outpacing inflation and reinforcing the Bank of Japan’s (BOJ) stance towards raising interest rates.
Nominal wages rose 3.2% in May from a year earlier after a revised 3.6% advance in April, the labour ministry reported Tuesday. The figure was weaker than economists’ estimate but marked a fourth straight month of wage growth of at least 3%, the longest streak since 1992.
Base pay increased 3%, while a more stable measure — which excludes bonuses and overtime and is less affected by sampling distortions — rose 2.4% for full-time workers. When adjusted for inflation, cash earnings climbed 1.4% — the fifth straight month of gains, the longest stretch since 2021.
Tuesday’s data follows last week’s final tally of this year’s wage negotiations, in which affiliates of Japan’s largest labour union federation secured pay hikes of more than 5% for a third consecutive year — the first such streak since 1989-1991.
The continued strength underscores employers’ commitment to raising pay, despite difficulties related to the Middle East conflict that have disrupted supply chains and boosted inflation. That reinforces the BOJ’s view that a virtuous wage-price cycle remains intact, keeping it on track for further rate hikes.
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Markets are currently pricing in about an 88% chance of another BOJ increase by December, with recent data strengthening the case to move earlier. The board’s next decision will come at the end of this month.
“With crude oil prices stabilising, I believe that if current wage levels are maintained, real wages will continue to show positive growth for the time being,” Naoto Sekiguchi, an economist at SMBC Nikko Securities Inc, said in an interview. “I expect the BOJ will maintain its course towards raising rates.”
The BOJ said in its April outlook report that tight labour market conditions should keep nominal wages rising steadily. Japan’s unemployment rate has remained below 3% for more than five years, among the lowest in the developed world.
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Recent gains in real wages have been helped by slower inflation, partly due to Prime Minister Sanae Takaichi’s subsidies for gasoline, education and other household expenses. Those have softened headline inflation while masking underlying price pressures, which help explain why sustained real wage growth hasn’t so far supported consumer spending.
Separate data from the internal ministry Tuesday showed that inflation-adjusted household spending fell 0.4% in May from a year earlier. That marked the sixth straight month of declines, the longest since early 2024.
Persistent labour shortages continue to force companies to keep pay elevated to attract and retain workers, while they are also increasingly squeezing smaller firms with weak productivity and limited pricing power. Tokyo Shoko Research data released last week showed that a record 237 companies went bankrupt due to labour shortages in the first half of the year, with half citing rising labour costs as the primary reason.
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