Japan Real Wages: Updated July 11, 2025.

Japan's real wages in May fall 2.9%, sharpest drop in nearly 2 years

Article source:  https://mainichi.jp/english/articles/20250707/p2g/00m/0bu/010000c

Ideas

Wages in Japan have been continually falling among advanced nations when in the 1980's Japan had some of the highest wages among economies.

While others economies have used the central bank as a way to try and reduce inflation, the Bank of Japan has been very hesitant, until very recently to increase interest rates as a way to try and reduce inflation.

The Bank of Japan and the Japanese government seem to be hoping that Japanese companies will increase wages enough to overcome the inflation challenge in the Japanese economy.

Real wages are a strong indicator of disposable income and purchasing power but both variables have not been good enough for Japanese households to get back to any kind of significant spending in the Japanese economy.

Consumers have got to be good about their wages or they are going to shrink back and wait until they feel better about spending and only spend on the needed items.

Japanese workers, especially large company workers get a bonus twice a year and if it good enough it can maybe spur some spending in the economy.

Nominal wages don't really mean much as real wages are the true indicator for Japanese households as real wages determine purchasing power for households and consumers in Japan.

It must be remembered that the 5.25 percent wage increase was/is mostly for large Japanese companies and small and mid-size companies probably got a little less and small and mid-size companies just don't have the resources need to pay the same wage increases.

Small and mid-size companies makes up about 70 percent of the total workforce in Japan so that means up to 70 percent of the total workforce might not have received a wage increase of 5.25 percent, which then means their purchasing power, to buy things in the Japanese economy is much less.

If consumer prices increased 4.0 percent that means maybe up to 70 percent of the Japanese workforce might have received something lower than 5.25 wage increases which means Japanese household might still be challenged with continued inflation.

And then add in the always needed or expected special earnings or bonuses and if they weren't what was expected that means again less purchasing power for Japanese households.

Most likely many companies might have used what they had on increasing wages, but when it came time to give bonuses in May or June, a traditional bonus time of the year, there were less funds than needed to give the normal bonuses this year.

Again, as a reminder maybe the large companies were able to give the usual bonuses but the small and mid-size companies just didn't have the resources needed to give the usual bonuses and maybe many of them used the funds they had on increasing what wages they could in April and again when bonus time came around there just weren't enough funds needed to give the usual bonuses.

Japan seems to have a two-tier economy made up of large size brand name companies and then another tier of small and mid-size companies that are operating on a completely different scale compared to the large Japanese companies.

Someone might say its that way in every major economy, but its not as some small and mid-size companies have equal footing in the economy such as in Europe and especially in Germany.

So Japan might be an economy of haves and have nots where the large Japanese companies have all the resources and maybe a lot of market power but the small and mid-size companies are always left behind as they just don't have the resources needed to be successful and or have a good footing in the Japanese economy.

Have a nice day!