The Largest Drop in Japan’s Real Wages in Eight Years Due to Inflationary Pressure in 2022

According to government data released on Tuesday, Japan’s inflation-adjusted real wages fell the most in eight years in 2022 due to surging living costs exceeding nominal wage growth. The data adds to Prime Minister Fumio Kishida’s pursuit of a “virtuous cycle” of inflation and rising wages to boost the world’s third-largest economy. Despite nominal wages growing by 1.9% in the year ending in March, inflation outpaced wage growth at 3.8%, resulting in a 1.8% decline in real wages. This is the most significant annual decrease since 2014 when the consumption tax increase led to widespread inflation, causing a 2.9% decrease in real wages.

The data highlights the need for wages to increase further to exceed inflation and stimulate private consumption from consumers who constitute more than half of the economy. While major corporations have agreed to raise wages by nearly 4% this year, wage growth in Japan has been stagnant over the last three years, known as Japan’s “lost decades” after the collapse of the asset-inflated bubble economy. Compared to the other G7 countries, Japan has seen a much weaker pace of wage growth, rising only by 1.4 times over the same period. The cautious attitude of Japanese companies recognizing the importance of improving wages to attract skilled workers amidst a labor shortage caused by an ageing population resulted in the highest growth rate of wages in 30 years.

Thomson Reuters Trust Principles were used to report on this story. Reported by Satoshi Kajimoto and edited by Shri Navaratnam of Reuters.

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