Japan’s real wages rise again, aided by Takaichi’s relief

[TOKYO] Japanese workers’ real wages rose for an eighth straight month, the longest streak of gains in almost a decade, as Prime Minister Sanae Takaichi’s inflation relief measures helped bolster households’ purchasing power.

Real cash earnings – adjusted for inflation excluding rents – climbed 1.5 per cent in August from a year earlier, the labour ministry reported on Wednesday (Oct 7), matching the median economist forecast.

The ministry said that the increase was underpinned by steady growth in base salaries, which rose 3.8 per cent.

Nominal wages also increased 3.8 per cent, staying above 3 per cent for a seventh month, the longest such run since 1992.

A more stable gauge that strips out bonuses, overtime and sampling distortions rose 2.8 per cent for full-time workers.

Takaichi’s utility subsidies helped keep the year-on-year increase in the overall consumer price index at 1.9 per cent in August.

The premier touted her efforts during a policy speech on Monday to mark the start of a new session of parliament, noting that price relief measures had helped give Japan the lowest inflation rate in the Group of Seven.

That, in turn, is helping the nation’s real wages rise at the fastest pace among its peers.

The government is now aiming to give households further relief by cutting the sales tax on food to 1 per cent from 8 per cent for two years starting in April, a key issue to be debated in the extraordinary Diet session now underway.

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How the plan takes shape could affect Takaichi’s strategy for managing fiscal policy and determine whether her public support remains firm.

Wage gains have been supported by healthy corporate earnings.

Ordinary profits across all industries hit a record in the quarter through June, buoyed by artificial intelligence-related demand and a weaker yen, Finance Ministry data showed in September.

Business sentiment has also held up, with the Bank of Japan’s (BOJ) latest Tankan survey showing confidence among large manufacturers at its highest in more than eight years.

Bloomberg Economics noted: “The details suggest the underlying trend is holding firm and support the Bank of Japan’s view that it is gradually securing its 2 per cent inflation target. We expect the central bank to deliver a 25 basis point hike in December.”

Strong profits and improving business confidence provide a favourable backdrop as workers prepare to begin the next round of annual wage negotiations.

Japan’s largest labour union federation typically announces its pay target for the coming fiscal year as early as October.

Workers represented by the group secured increases of more than 5 per cent for a third straight year in 2026’s round of talks.

Sustained wage growth has been a factor paving the way for the BOJ’s interest rate hikes.

In September, after hiking the benchmark rate for the second time in three months, the central bank signalled the need for further tightening by underscoring the risk of inflation overshooting its 2 per cent target.

Authorities cited increasingly proactive wage- and price-setting behaviour among companies as one source of upward price pressure.

While most economists expect the BOJ to hold its policy settings steady when the next board meeting concludes on Oct 30, as at Wednesday morning in Tokyo, overnight index swaps showed markets were pricing in a 76 per cent probability of another rate hike by end-2026.

Japan’s demographic challenges have been a key factor driving wage momentum.

Chronic labour shortages have forced companies to compete for talent by raising pay levels. Some companies unable to pass the higher input costs on to customers have struggled.

Bankruptcies caused by labour shortages rose to a record 240 in the first half of fiscal year 2026, according to a report Tokyo Shoko Research released on Monday.

More than half were attributed to rising personnel costs, underscoring mounting financial pressure on smaller businesses, the firm said.

It remains unclear whether higher wages will translate into stronger spending. Private consumption remains fragile, with household spending falling for eight straight months through July. BLOOMBERG