Japan wage growth to surpass inflation, says asset management firm

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Japan wage growth to surpass inflation, says asset management firm

********* ****** hanging out on Shibuya streets of Tokyo, Japan.

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********* wages are expected to grow in real terms in the second half of 2024 for the first time in more than three decades, according to Asset Management One.

Wages in Japan are rising more rapidly than they did in 2023, the investment management firm noted in a recent report.

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rose 3.6% year on year in July. In comparison, the ********* core consumer price index, which excludes fresh food,

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.

********* real wages in July rose 0.4% year on year, rising for a second consecutive month after a 1.1% rise in June.

Asset Management One economists anticipate regular wages likely maintained this rate of growth this summer, despite recent volatility in the yen and ********* equities.

“The past three decades in Japan have been defined by minimal price inflation and negligible wage growth,” said Yuko Iizuka, economist at Asset Management One.

Wages growing faster than inflation typically means that consumers have more disposable income. The bulk of this higher disposable income will be reinjected into the economy and help lift Japan out of three decades of stagnation, Iizuka added. 

“That stagnation has held the economy back for almost 30 years. That ‘norm’ is now changing,” she observed.

Other macroeconomic trends driving long-term wage growth are labor shortages, and a likelihood that the yen’s weakness against the greenback has peaked, the report noted. Additionally, large companies are expected to raise wages by 5.28% for 2024, Japan’s largest union group announced in March following the shunto spring wage negotiations. The move

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“It appears that the effects of major wage hikes of the 2024 spring labor negotiations have become manifest,”

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said.

Daiwa economists including Keiji Kanda wrote in a report last week that real wages are expected to continue growing as a result of “wage hikes continuing at a high level” in large part thanks to the wage negotiations. 

“We also expect the underlying inflation rate to stabilize at around 2% due to the cycle of wage increases and price pass-through,” Daiwa said.

But uncertainty around Japan’s long-term economic prospects might limit the boost in consumer spending, cautioned Iikuza.

“Longer-term anxiety – particularly amongst younger people – may constrain the increase in consumer spending further… many young people may choose greater saving as the prudent option,” she said.

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