Japan’s real wages declined for the third consecutive month in March, reflecting the continued pressure of inflation on household purchasing power. Government data released on Friday showed that real wages, adjusted for inflation, fell by 2.1% year-on-year. This follows a revised 1.5% drop in February and a 2.8% decline in January, underlining a persistent strain on household finances. The inflation figure used for this calculation, which includes fresh food prices but excludes rent, stood at 4.2% in March, only slightly down from February’s 4.3%, and remained elevated due to rising food costs.
Despite the squeeze on wages, household spending surprised to the upside. Data from the internal affairs ministry showed a 2.1% year-on-year increase in March, well above the market forecast of just 0.2%. On a seasonally adjusted monthly basis, spending also rose 0.4%, defying expectations of a 0.5% decline. An official from the ministry attributed the increase to higher expenditures on utilities and entertainment, suggesting a modest rebound in consumption activity. However, spending on food items continued to decline as consumers adjusted to ongoing price hikes.
Nominal wages, or total average cash earnings, grew 2.1% in March to 308,572 yen (approximately $2,132), although the pace was slower than the revised 2.7% rise recorded in February. Regular pay, which includes base salaries, increased 1.3% for the second month in a row, while overtime pay dropped 1.1%, marking its first decrease since September and the steepest drop since April of the previous year. This reduction in overtime earnings may signal a softening in corporate activity, which could weigh on future wage growth.
Japan’s broader economic outlook remains uncertain, with economists anticipating a contraction in first-quarter GDP. While large Japanese companies committed to average wage hikes of over 5% during the annual spring labor negotiations, the impact of those raises is expected to begin appearing in the wage data for April and beyond. Masato Koike, senior economist at Sompo Institute Plus, suggested that real wages could turn positive in the coming months if oil prices drop and the yen strengthens, thereby reducing import-related inflation. However, he also warned that the global economic slowdown, especially due to potential US tariffs, might dampen wage growth momentum and limit any significant boost in consumer spending.
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