The era of minimal inflation and virtually non-existent wage growth seems to be leaving us behind in Japan. The Japanese country will see a situation that has dominated the last three decades reversed if real wages can maintain the upward trend.
The rate of increase is higher than that recorded in 2023. In July, the country’s average monthly income increased by 3.6% year-on-year compared to the 2.7% recorded by the general inflation index and real wages recorded an increase of 0.4% year-on-year, its second consecutive increase after the 1.1% recorded in June.
Economists at Asset Management One expect wages to hold at that pace through the summer despite volatility in the yen and Japanese stocks, and expect them to rise in real terms in the second half of 2024 for the first time in more than three decades.
The fact of wages are rising faster than inflation This generally translates into higher incomes for consumers, most of which will be pumped back into the economy and help wake Japan from three decades of economic slumber.
The stumbling block is the uncertainty generated by Japan’s long-term economic outlook, which could limit the incentive to spend, especially among young people, and to bet on preventive savings.
The two main determinants of wages are labor shortages and the likelihood that the yen’s weakness against the dollar has peaked, following the Japanese currency’s rebound against the yen from a record low.
In the spring, social dialogue (shunt) has agreed to the largest wage increase in 33 years, 5.28% for 2024. “It appears that the effects of the significant wage increases from the spring 2024 collective bargaining negotiations have materialized,” Daiwa Research Institute said in a report, noting that they also expect the underlying inflation rate to stabilize around 2% in this context.
