Japan: Basic wages record the highest growth rate since 1992, but real wages continue to decline.

The Japanese Ministry of Labor announced on Thursday morning that wage growth in November was stronger than expected, with total cash earnings rising by 3.0% year-on-year, surpassing market expectations which suggested a growth of 2.7%. Additionally, this figure was higher than the reading recorded in October which showed a growth of 2.2%.

At the same time, basic wages, or regular wages, rose by 2.7%, marking the fastest growth rate since 1992, nearly 32 years ago, while overtime wages increased by 1.6% year-on-year, accelerating from 0.7% in October.

A key measure of wage trends that excludes bonuses and overtime showed that full-time workers’ wages grew by 2.8% year-on-year, marking 15 consecutive months of growth at or above 2%.

Despite this sustained wage growth, real wages adjusted for inflation fell by 0.3% year-on-year in November, following a decline of 0.4% in October. This month marked the fourth consecutive drop in real wages, reflecting the ongoing impact of inflation on purchasing power.

The data may fuel speculation about a potential interest rate hike in the near future by the Bank of Japan, as some market participants look for policy adjustments in this month’s meeting. However, dovish comments from Bank of Japan Governor Kazuo Ueda after the December meeting tempered expectations, indicating that any tightening may be delayed.

Continued wage growth suggests tightening labor market conditions and may bolster confidence in Japan’s economic recovery. However, the persistent decline in real wages underscores the challenges posed by inflation, complicating the next steps for Bank of Japan policy.