Japan’s Jan Real Wages Drop at Fastest Pace in Nearly 9-Year amid Inflation Pressures

Official data showed real wages in Japan declined by the highest in nearly nine years in January, as 40-year high inflation constricted the purchasing power and hindered efforts by policymakers to restore the economy following the devastating effects of COVID-19.

Inflation-adjusted real wages, a measure of household purchasing power, fell by 4.1% in January compared to the previous year, the largest drop since May 2014, according to labor ministry statistics released on Tuesday. This decline came after December’s was lowered by 0.6%.

Although big Japanese companies like Toyota, Nintendo, and Fast Retailing responded to calls from policymakers and union demands by declaring plans for unprecedented pay raises, real salaries still declined.

Japan’s wage growth trends are being closely watched by investors since the Bank of Japan has stated that wage increases, along with inflation of 2%, are necessary to begin reducing its ultra-easy monetary policy.

At a policy review on Friday, the central bank is expected to retain its ultra-low interest rates, as it awaits a leadership transition that might soon end outgoing head Haruhiko Kuroda’s dramatic stimulus.