Japan's real wages experienced their most significant decline in nearly two years, as inflation continues to outpace wage growth, affecting the consumption-driven growth of the world's fourth-largest economy. Despite a recent report indicating a substantial wage increase for unionized workers, overall wage data remains weak, raising concerns about Japan's economic recovery amid uncertainties like U.S. trade tariffs.
According to the Japanese Ministry of Health, Labour and Welfare, inflation-adjusted real wages fell by 2.9% year-on-year in May, marking the largest drop in 20 months. This follows a revised 2.0% decline in April. Real wages, a crucial factor for household purchasing power, have now decreased for five consecutive months.
In May, the consumer inflation rate, which includes fresh food prices but excludes rent costs, rose by 4.0% year-on-year. This rate significantly outpaced the nominal wage growth of 1.0%, which reached 300,141 yen (approximately $2,080), the lowest since March 2024, down from a revised 2.0% in April. A ministry official attributed the slowdown in nominal wage growth to an 18.7% drop in special payments, largely consisting of volatile one-time bonuses. Meanwhile, fixed wages increased by 2.0%, and overtime pay rose by 1.0%, both decelerating compared to April.
