Japan’s pay freeze may be about to thaw

Wages in Japan may be about to start rising as inflation creeps up. Could we be next?

I wrote here earlier in the week that one of the big changes in Japan is the sense that wages should and will rise in the spring wage round.

The good news is that there are signs that the intense government pressure on companies to put up pay might be beginning to work already.

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Base pay rose 0.1% in January. This doesn't sound like much, and it isn't. But given that it is the first rise in the series in two years, it is encouraging as is the fact that the rise in wages mainly went to the lowest-paid part-time workers.

What next? Keep an eye on wage announcements from the big manufacturers over the next few weeks as the wage negotiations come to an end. They are keen to keep wages down despite the huge profit rises they have seen as the yen has fallen. Everyone I saw last week spoke of wage rises as representing unmanageable increases in fixed costs.

But that might not be a position they find they can hold. Unemployment in Japan is running at only 3.7%, and in a clear sign of labour market tightening, both part-time and full-time employment rose by 1.2% in January.

Finally, we might note, as Jonathan Allum of SMBC Nikko does, that "Japan is unique among developed nations in that it is reporting inflation figures that exceed expectations".

Japanese employees put up with stagnant wages when the country was seeing deflation (after all, in a deflationary environment not getting a wage cut is the same as getting a rise). But they are unlikely to be as sanguine if they begin as the polls suggest they are to consistently expect inflation.

PS It isn't just in Japan that the pay squeeze might be beginning to lift. In the UK headline wage growth was running at 1.1% in December. If that rises just a bit and if inflation stays where it was in January (1.9%) we too might soon stop seeing real cuts to our pay every month.