(Bloomberg) — Japanese wages fell in December for a ninth straight month, declining the most since June 2015, as employers remained fearful of the profit outlook amid a global resurgence of the coronavirus.

Labor cash earnings slid 3.2% from a year earlier, weighed down by a drop in year-end bonuses, labor ministry data showed Tuesday. Economists had predicted a bigger overall fall of 4.8% that would have been the worst reading since the 2009 financial crisis.

chart: Deeper falls in Japanese wages imperil any consumption-led recovery

© Bloomberg
Deeper falls in Japanese wages imperil any consumption-led recovery

The smaller-than-expected drop follows a report showing household spending also fell less than expected in December, offering a slightly less dismal view of the spending environment for workers than had been assumed at the end of 2020.


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Still, pay declines are likely to limit the extent of any rebound in consumer spending even after Japan lifts a state of emergency that is planned to cover the country’s main cities until March 7. Analysts see falling consumer spending as a key reason for the economy falling back into contraction this quarter.

Key Insights

So far, Japan’s companies have fired fewer workers than in many other major economies, keeping unemployment at a low rate of 2.9%, but one of the big tradeoffs has been steep cuts to bonuses.“The underlying wage trend is likely to remain weak as companies prioritize protecting jobs,” said economist Koya Miyamae at SMBC Nikko Securities Inc. “Without wage growth, inflation will be under downward pressures for a while, which validates the need for the BOJ’s policy assessment.”The Bank of Japan is getting ready for a policy review next month to try to make its easing more sustainable. The pandemic has driven consumer prices back into negative territory and made it more likely that the BOJ will have to continue its asset purchases and ultra-low interest rates for an extended period.Last week Prime Minister Yoshihide Suga extended the state of emergency, calling on restaurants and bars in Tokyo and other major metropolitan areas to close early for another month.

What Bloomberg Economics Says…

“We expect wages to weaken further in 1Q. The early stage of spring wage negotiations doesn’t send a strong signal for pay rises. But the wage gap between manufacturers and non-manufacturers appears to have increased during the pandemic.”

–Yuki Masujima, economist

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Bonus payments fell 5.4% from the prior year.Adjusted for inflation, overall wages dropped 1.9%. Analysts had forecast a 3.4% decline.

(Adds economist’s comments.)

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