Japanese Economy: Real Wages Are Moving Toward Positive Growth

■ While wages maintained a moderate upward trend, price growth slowed from its high level, and real wages are now approaching positive growth.  

■ Continued dialogue with the government is necessary to support the ongoing normalization of the Bank of Japan's policy. 
 
   The October Monthly Labor Statistics released on the 8th showed that total cash wages (up 2.6% year-on-year, or 2.4% for the same industry) increased further from September (up 2.1% year-on-year). However, with persistent high price increases of around 3%, wage growth remained insufficient, and real wages (down 0.7% year-on-year) declined for the tenth straight month. Examining the composition of nominal wages in October, the "stipulated wage," which reflects basic wages (up 2.6% year-on-year), stayed steady, while stipulated wages for general workers (up 2.7% year-on-year) accelerated compared to November (up 2.0%). This likely reflects wage increases from spring labor negotiations for 2025. Although the wage increase agreed upon was in the mid-3% range, it is slightly less substantial but still shows a moderate upward trend. Meanwhile, the October increase in the regular wages of part-time workers (3.3% year-on-year) did not show a significant impact from the minimum wage increases implemented in October. The minimum wage adjustments, which will take effect gradually from October 2025 to March 2026 across different prefectures, were delayed in many regions due to this year's larger increases, so their effects may take some time to be observed. 
 
   Looking ahead, wages are expected to grow moderately amidst a structural labor shortage. As year-end approaches, supported by strong corporate profits, winter bonuses are projected to rise, and the gradual increase in minimum wages will further boost wage growth. Meanwhile, inflation is expected to slow. Although core inflationary pressures remain strong, food prices are beginning to ease from previous highs, and government expansion of gasoline subsidies to phase out the old temporary tax rate will exert downward pressure on prices. Consequently, we believe real wages will turn positive between the end of this year and early next year. Furthermore, regarding the spring labor negotiations for fiscal year 2026, considering the economic factors driving wage increases—tight labor markets, strong corporate profits, and high price levels—although the pace may slow slightly compared to last year, steady wage growth is still anticipated. The conditions for sustained wage increases are highly likely to be in place. 
 
   These developments will likely encourage the Bank of Japan to continue normalizing its policies. Market expectations for an early interest rate hike are increasing, but additional rate hikes could face opposition from the Takashi City government, which favors a "reflation policy." Dialogue with the Takashi City government will remain a challenging aspect of policy adjustments for the Bank of Japan. Attention will also be focused on whether Governor Ueda's speech this evening gives any clues about future policy directions.