Summary:
Japan real wages fell 2.8% y/y in November
Sharp drop in bonus payments weighed on incomes
Nominal wage growth slowed to 0.5% y/y
Inflation stayed elevated at 3.3%
Wage-inflation gap remains a key challenge complicating the Bank of Japan’s tightening path.
Japan’s real wages fell sharply in November, marking the steepest decline since January and underscoring the ongoing squeeze on household purchasing power as inflation continues to outpace income growth.
Data from Japan's labour ministry showed inflation-adjusted real wages dropped 2.8% year-on-year in November, a deterioration from October’s revised 0.8% fall and the eleventh consecutive monthly decline. The result matched January’s decline and was the weakest outcome since late 2023, highlighting the persistent challenge facing consumers despite gradual progress on base pay growth.
The headline weakness was heavily influenced by a sharp fall in special payments, primarily one-off bonuses, which plunged 17% from a year earlier. These payments tend to be volatile outside peak bonus seasons, and officials cautioned that November figures are often understated at the preliminary stage as many winter bonuses have yet to be recorded.
Nominal wages reflected the same pattern. Average total cash earnings rose just 0.5% year-on-year to ¥310,202, the slowest pace of growth since December 2021. While this points to softness in headline pay, underlying wage trends were more stable. Regular pay, or base salaries, increased 2.0%, easing from October but remaining broadly consistent with recent months. Overtime pay rose 1.2%, signalling modest but continued activity in the private sector.
Inflation, however, remains firmly elevated. Consumer prices rose 3.3% in November, well above wage growth and continuing to erode real incomes. The inflation measure used in the wage data includes fresh food prices but excludes rents, meaning real-wage pressure remains pronounced even as some cost components stabilise.
The data present a dilemma for the Bank of Japan, which raised its policy rate to a 30-year high of 0.75% last month and has signalled further tightening if wage momentum strengthens. Policymakers continue to look ahead to annual spring wage negotiations, with Japan’s largest union group targeting pay rises of at least 5% this year — a key test for whether inflation can be sustained alongside real income growth.
