Japan reported a slight increase in nominal worker cash earnings in September, rising 1.2% year-on-year, slightly above market expectations for a 1.0% year-on-year increase. This increase, which improved from 0.8% in the previous month, may seem like a positive indicator at first glance, as base pay growth also rose to 1.4% year-on-year from 1.2% in August.
However, not all elements of earnings showed strength. Special benefits, a volatile category, continued to decline by -6.0% year-over-year, although not as much as the -6.3% year-over-year decline reported in August. Overtime pay, on the other hand, showed a slight increase of 0.7% year-on-year, suggesting a slight increase in overtime hours.
The delicate state of Japan’s wage situation becomes even more concerning when adjusting for inflation. Real wages, which indicate the purchasing power of income, decreased significantly by 2.4% compared to the same month last year, marking the 18th consecutive month of decline. This sustained decline in real wages indicates that household incomes are under pressure as inflation outpaces nominal wage growth.
Household spending fell -2.8% year-on-year due to income pressures, but this was slightly better than the expected -3.0% year-on-year decline. This is the seventh consecutive month of decline and highlights the continued reluctance of Japanese consumers to open their wallets amid economic uncertainty.
On a more positive note, seasonally adjusted household spending unexpectedly increased by 0.3% m/m, beating expectations for a -0.4% m/m decline.