Japan’s real wages extend streak with 1.5% August gain

Japan’s real wages have risen for the eighth consecutive month, marking the longest streak of gains in nearly a decade. The Labour Ministry reported a 1.5% year-over-year increase in real cash earnings for August, driven by Prime Minister Sanae Takaichi’s inflation relief measures. Base salaries surged 3.8%, while nominal wages also climbed 3.8%, maintaining above 3% for seven months, the longest such run since 1992.

Takaichi’s utility subsidies helped cap the consumer price index at 1.9% in August, the lowest among the Group of Seven nations. The government plans to further reduce the sales tax on food to 1% from 8% for two years starting April 2027, a key debate in the ongoing Diet session. This policy aims to sustain household purchasing power and support wage growth, which has been bolstered by strong corporate earnings and labor shortages.

Healthy corporate profits, driven by AI-related demand and a weaker yen, reached a record high in the quarter through June. Business sentiment remains robust, with the Bank of Japan’s Tankan survey showing high confidence among large manufacturers. Bloomberg Economics noted that wage and price trends support the BOJ’s 2% inflation target, anticipating a 25 basis point rate hike in December.

Despite wage gains, private consumption remains fragile, with household spending declining for eight straight months through July. Labour shortages have forced companies to raise pay levels, leading to a record 240 bankruptcies in the first half of fiscal 2026, primarily due to rising personnel costs. The impact of higher wages on consumer spending remains uncertain, highlighting ongoing economic challenges.