Itochu Research Institute: Real Wages Continue Declining
The Itochu Research Institute's Associate Senior Research Fellow Sota Takano put out a new research note last week, analyzing the most recent monthly labor survey.
Nominal Wage Growth Accelerates, but Real Wages Remain Negative
In September, the growth rate of total cash earnings was +1.9% year-on-year, accelerating from the previous month's +1.3%. This was mainly due to special payments (including bonuses) turning positive (from -7.8% to +4.5%). However, the situation where wage growth cannot keep pace with inflation continues, and real total cash earnings (adjusted for price increases) remained at -1.4%, marking the ninth consecutive month of decline.
Looking ahead, real wages are expected to turn positive by early 2026 at the latest. While the nominal wage growth rate is projected to remain around the low-to-mid 2% range during fiscal 2025, consumer price growth is expected to continue decelerating. Subsequently, with the 2026 spring wage negotiations (Shunto) expected to yield high wage increases of at least the mid-4% range, and with price increases stabilizing, we anticipate that positive real wage growth will become established next year.
Nominal Wage Growth Accelerates, but Real Wages Continue to Decline
According to the Monthly Labor Survey released by the Ministry of Health, Labour and Welfare on November 6, the growth rate of total cash earnings in September (preliminary) was +1.9% year-on-year, accelerating from August's (final) +1.3%. This was mainly due to special payments (including bonuses) turning positive from the previous month's significant negative (August: -7.8% → September: +4.5%). Additionally, non-scheduled payments (overtime pay, etc.) also saw a slight increase in growth (+0.4% → +0.6%). Scheduled payments (base salary) growth remained flat at +1.9% from the previous month. On a common establishment basis, which compares only establishments common to both the current and previous year, scheduled payments in September grew by +2.2%, slightly decelerating from the previous month's +2.4%.
Real total cash earnings, adjusted for price increases, were -1.4% year-on-year, marking the ninth consecutive month of decline. However, as nominal wage growth increased, the negative margin narrowed from the previous month's -1.7%. While the consumer price index (excluding imputed rent of owner-occupied housing) growth rate also accelerated (+3.1% → +3.4%), the wage growth rate exceeded this increase.
Additionally, real wages calculated using the overall consumer price index (including imputed rent), which has been published since March, were -1.0% year-on-year, 0.4 percentage points higher than conventional real wages. This "overall" basis for real wages is useful and easier for international comparisons. On the other hand, the basis "excluding imputed rent" is closer to consumers' actual living conditions. Therefore, when forecasting personal consumption trends, it would be appropriate to evaluate wages adjusted on an "excluding imputed rent" basis.
Positive Real Wage Growth Expected to Become Established Next Year
Overall, while the September Monthly Labor Survey showed improvement from the previous month, the results were somewhat weak, falling below last year's wage growth rate, considering that this year's spring wage negotiations yielded wage increases exceeding last year's levels.
The background to why scheduled payments in the Monthly Labor Survey lag behind wage increase rates and base-up rates in spring negotiations may include technical factors such as sample replacement, as well as the possibility that wage growth rates are sluggish at companies that do not participate in spring negotiations (those without labor unions) but are surveyed in the Monthly Labor Survey. In 2024, there was a significant difference in wage growth rates depending on the presence or absence of labor unions, and if this trend has strengthened this year, it could explain the wage growth underperformance compared to spring negotiations.
In any case, the wage growth rate during fiscal 2025 is expected to remain at around the low-to-mid 2% range, similar to current levels. This is because wage revisions for this fiscal year are considered to have been largely reflected by September. Last year, 95.0% of companies began paying revised wages by September 15, exceeding 90%.
However, real wages are expected to improve going forward. While nominal wage growth rates are projected to remain around the low 2% range during fiscal 2025, as price surges subside toward year-end, we expect real wages to rise into positive territory by early 2026 at the latest.
Looking toward 2026, real wage growth is expected to remain firmly in positive territory. This is because while the inflation rate in 2026 is projected to fall below 2%, wages are expected to continue rising at elevated rates next fiscal year as well.
Current estimates for the 2026 spring wage negotiation rate suggest that while it will decline from this year's level, given the tightening labor supply-demand situation and heightened interest in policies promoting price increases and wage hikes, we expect a high wage increase rate of at least the mid-4% range to be achieved. While this represents a significant deceleration compared to this year's actual result of +5.25%, actual results in the past two years have significantly exceeded estimated values, and if this upward trend continues, wage increases of around 5% could come into view. The Japanese Trade Union Confederation (Rengo) announced on October 23 that it would set its target wage increase rate for the 2026 spring negotiations at "5% or more," the same as 2025, suggesting that a wage increase rate close to this year's level is entirely possible.
Norbert Gehrke
