Japan's Real Wages Decline in March While Consumer Spending Rises

Japanese real wages fell for the third month in a row in March, dragged down by relentless inflation, though consumer spending exceeded expectations, according to government data released on Friday.

Japan’s mixed wage and spending data underscore the difficult future picture for growth as the export-dominated economy confronts the risk of tariffs and monetary uncertainty. Economists forecast a decline in first quarter GDP next week.

The major determining factor of household purchasing power, inflation-adjusted real wages, declined 2.1 percent in the month of March from a year earlier based on figures from the labor ministry, after a revised 1.5 percent drop in February and a 2.8 percent drop in January.

Consumer inflation rate from the ministry used to calculate real wages that inclusive of fresh food prices but exclude rent costs surged 4.2 percent year on year in March a bit lower than 4.3 percent rise in February, but still very high due to increased subject to food prices.

Basesalaries, or regularpay, jumped by 1.3 percentin March, flattering the rate in February after an downward revision. Yet, overtime pay contracted 1.1% after February’s revised 2.4% growth, suggesting possible stalling the business activity.

It was the first drop in overtime pay since September, and the steepest since this time last year.

At 308,572 yen ($2,132) March total average cash earnings, or nominal pay, jump 2.1 percent, the lower level than previous months’ revised 2.7 percent gain.

Major Japanese firms had agreed to over 5% annual spring wage increases in the negotiations in March, however, the effect of such increases only surfaces in the government’s wage data at end of April, or even later.

“Looking ahead, real wages would probably find its position in the positive territory,” said Masato Koike a senior economist at Sompo Institute Plus. He further added that lower prices for oil and a stronger yen would exert downward pressure on the import prices and keep inflation under control.

At the same time, Koike expressed concern that a global economic slowdown caused by US tariffs could stall wage hike momentum.

Meanwhile, separate internal affairs ministry data showed that Japan's household spending increased by 2.1% from the previous year, far exceeding the median market forecast of a 0.2% increase.

On a seasonally adjusted, month-on-month basis, spending increased 0.4%, compared to an expected 0.5% decline.

According to an internal affairs ministry official, increases in utilities and entertainment spending have pushed up overall figures, with signs of consumption picking up in recent months.

The official, however, stated that consumers were still cutting back on food purchases due to rising prices.

"Real wages are expected to rise, but it is difficult to envision a significant increase in consumption in the face of increasing uncertainty, such as tariffs," Koike of Sompo Institute Plus stated.