Japan’s Real Wages Mark Fourth Year of Decline in 2025, But Inflation Cooling Sets Stage for 2026 Rebound
Japanese real wages contracted for a fourth consecutive year in 2025, though recent data signals that the country’s prolonged struggle with eroding purchasing power may be nearing an end, according to a recent report published by the Itochu Research Institute.
Monthly Labor Survey data released by the Ministry of Health, Labour and Welfare on February 9 showed that inflation-adjusted real wages for the full year of 2025 fell by 1.3%, widening from the 0.3% decline recorded in 2024. While nominal cash earnings grew by 2.3%, this pace slowed compared to the previous year, weighed down by a significant deceleration in bonus growth and persistent inflationary pressure.
December Offers a Glimmer of Hope
Despite the gloomy annual figures, the (preliminary) data for December 2025 offers reasons for optimism. Nominal wage growth accelerated to +2.4% year-on-year, driven by a rebound in special pay, including winter bonuses, which swung from a negative in November to a +2.6% gain in December.
Crucially, the inflation metric used to calculate real wages (consumer prices excluding imputed rent) slowed sharply to +2.4%. Consequently, the decline in real wages narrowed significantly to just -0.1% in December. While missing the psychological milestone of positive growth by a hair, it represents a marked improvement from the -1.6% reading in November.
2026 Outlook: A Return to Positive Territory
Analysts at Itochu Research Institute forecast that real wages are poised to stabilize in positive territory throughout 2026. The convergence of sustained wage hikes and cooling inflation is expected to finally boost consumer sentiment.
The momentum for wage growth remains strong heading into the 2026 "Shunto" spring wage negotiations. The Japanese Trade Union Confederation (Rengo) has maintained its aggressive target of a "5% or higher" wage hike, matching last year's ambition. Furthermore, they have set a higher target of "6% or higher" for small and medium-sized enterprises (SMEs) to correct wage disparities.
With the business lobby Keidanren also emphasizing the need to "cement the momentum" of wage hikes, the environment for 2026 looks conducive to continued pay increases.
Simultaneously, inflationary headwinds are expected to ease. Government subsidies to combat high prices are driving down energy costs, and the pass-through of raw material costs to food prices appears to have run its course. As consumer price inflation is projected to decelerate further by mid-2026, the long-awaited rise in real wages is likely to materialize, providing a tailwind for a recovery in private consumption.
Norbert Gehrke
