According to an asset management firm, Japanese wage growth is predicted to exceed inflation for the first time in more than three decades.

• According to Asset Management One, Japanese wages are predicted to increase in real terms in the second half of 2024 for the first time in over three decades.
• Despite recent fluctuations in the yen and Japanese equities, one economist predicts that regular wages will continue to grow at the same rate this summer.

According to Asset Management One, Japanese wages are predicted to increase in real terms in the second half of 2024 for the first time in over three decades.

The investment management firm reported that wages in Japan are rising more quickly than in 2023, with average monthly cash earnings increasing by 3.6% year on year in July. In contrast, the Japanese core consumer price index, which does not include fresh food, rose by 2.7% in July.

In July, Japanese real wages increased by 0.4% compared to the previous year, following a 1.1% increase in June, marking the second consecutive month of growth.

Despite recent volatility in the Japanese stock market, one economist predicts that regular wages will continue to grow at the same rate this summer.

In the past three decades, Japan has experienced low inflation and stagnant wage growth, according to Yuko Iizuka, an economist at Asset Management One.

Iizuka stated that when wages increase at a faster rate than inflation, consumers have more disposable income, which will be mostly reinvested into the economy, helping Japan overcome its three-decade stagnation.

"For almost 30 years, stagnation has hindered the economy. However, that norm is now shifting," she observed.

The report noted that labor shortages, the likelihood that the yen's weakness against the greenback has peaked, and large companies' plans to raise wages by 5.28% for 2024 are among the macroeconomic trends driving long-term wage growth in Japan. This marks the most substantial pay hike in 33 years.

The Daiwa Institute of Research stated that the effects of the major wage hikes from the 2024 spring labor negotiations have become apparent.

Last week, Daiwa economists including Keiji Kanda wrote in a report that real wages are expected to continue growing due to "high-level wage hikes" resulting from successful wage negotiations.

Daiwa anticipates that the inflation rate will remain stable at approximately 2% as a result of the cycle of wage increases and price pass-through.

Iikuza warned that uncertainty about Japan's future economic growth may hinder the increase in consumer spending.

Younger people's long-term anxiety may limit the growth of consumer spending, leading them to prioritize saving as a responsible choice.