Wages finally rise in Japan but are such small rises the future for us too?

This morning has brought news from the land of the rising sun or Nihon. Actually it is news that much of the media has been churning out over the Abenomics era when they have tried to report wage growth when there has not been any. However today the Ministry of Labor published some better news of the real variety.

Nominal cash earnings rose 2.1 percent year-on-year in March, the fastest annual gain since June 2003. It followed a revised 1.0 percent gain in February.

Regular pay, which accounts for the bulk of monthly wages, grew 1.3 percent in the year to March, the biggest gain since July 1997, while special payments jumped 12.8 percent as many firms offered their employees end-of-the-year bonuses.

Overtime pay, a barometer of strength in corporate activity, rose an annual 1.8 percent in March versus a revised 0.4 percent increase in February. (Reuters)

As you can see these numbers are something of a landmark in the lost decade era as we note the best overall earnings numbers since 2003 and the best regular pay data since 1997. Overtime pay was up too which is intriguing as the Japanese economy has not had the best start to 2018 and may even have shrunk in the first quarter ending a run of growth. Maybe this year Japanese employers are actually fulfilling their regular promises to raise wage growth.

Care is needed in that this is only one monthly number but after some revisions we see that 2018 so far has recorded annual wage growth of 1.2%,1% and 2.1%. These are low numbers but in the context are a shift higher. This can be explained if we look at the index for such numbers which is still only 101.9 after being set at 100 in 2015. We get an idea as it was 100 in 2014 as well and 100.6 in 2016 and 101 in 2017. Also we need to be aware that the main months for pay in Japan come in June/July and particularly December as for example pay in December is around double that for March but for now let us move on with a flicker of spring sunshine.

Is this the revenge of the Phillips Curve?

No doubt it is party time at the Ivory Towers although many may not have spotted this yet as of course news reaches them slowly. However I am still something of a “party pooper” on this subject as it still does not really work. Here is a tweet from a discussion I was involved in yesterday.

As you can see the state of play is very different between the American situation which we have looked at many times and the Japanese one. Female participation in the labour force changed with the onset of the lost decade era and male participation has picked up in the era of Abenomics although it had started around the beginning of the credit crunch.

If we look at the Abenomics impact I will let you decide if a major swing is good or bad. You see in the age group 55-64 the female participation rate is up by 10.2% in the past 6 years and the male one by 6.6%. I have written in the past that Japan looks after it older citizens well but there have been more and more suggestions that this is if not forced due to difficult circumstances. From the Independent on the 23rd of April.

For decades prior to this trend, it was a tradition for families and communities to care for their older citizens, but a lack of resources is making that harder to do so.

With the older population feeling more and more isolated as a result of this, women especially have turned to a life of crime in the hope that prison will provide them with a refuge and a home.

Returning to conventional economics there is also this to consider.

The number of unemployed persons in March 2018 was 1.73 million, a decrease of 150 thousand or 8.0% from the previous year.   The unemployment rate, seasonally adjusted, was 2.5%. ( Japan Statistics Bureau).

These are extraordinary numbers as it was 3.9% in 2007 so it has been singing along with Alicia Keys.

Oh baby
I, I, I, I’m fallin’
I, I, I, I’m fallin’

We cannot rule out the possibility it will fall even further as it was 2.4% in January. Also it is being combined with rising employment.

The number of employed persons in March 2018 was 66.20 million, an increase of 1.87 million or 2.9% from the previous year.


I though I would add this into the mix as it provides something of an irony. The view of the Bank of Japan has been for so long that an annual inflation rate of 2% is just around the corner. Yet in its last report it lost the faith.

In terms of the outlook for prices, most members shared the view that the year-on-year rate of change in the CPI was likely to continue on an uptrend and increase
toward 2 percent, mainly on the back of the improvement in the output gap and the rise in medium- to long-term inflation expectations.

And later this.

the momentum of
inflation was not yet strong enough to achieve the price stability target of 2 percent at an
early stage.

Of course now with an oil price of US $77 for a barrel of Brent Crude they may see an inflationary push bringing them nearer to their objective. Of course they think inflation at 2% per annum is a good thing whereas I do not. After all even the recent better wage data would leave real wages flat in such a scenario.

We will have to see if oil prices remain here but for now the news just coming through that Saudi Arabia has intercepted two ballistic missiles seems set to support it.


Let me start with some good news for Japan which is that on what used to be called the Misery Index it is doing very well. It used to add the unemployment rate ( 2.5%) to the inflation rate ( 1%) and as you can see it is rather low. Very different to the double-digit numbers from the UK when it was a popular measure.

But for economic theory and for the Phillips Curve in particular this is much less satisfactory.  This comes partly from asking where has it been? Let me hand you over to the Bank of Japan.

(1) the actual unemployment rate had been substantially below 3.5 percent, which had formerly been regarded as the structural unemployment rate,

So wage growth should have been surging for ages and it has not. Now we face a situation which may be more like a cliff-edge that the smooth Phillips Curve. This is because on every measure Japan has been approaching full employment and in the mad world of economics 101 has in fact passed it.

(2) the recruitment rate of new graduates and the employment rate of women had risen

In fact if you look at the demographic situation full employment seems set to be lower than it was due to the aging population as so far rising participation has offset it. But here is the rub if participation had not changed then unemployment would be below 2% now as we are left wondering what level would generate some real wages growth?

Meanwhile if we look back at the US participation data there were some chilling responses as to the cause. They looked at something which has troubled us before on here.




10 thoughts on “Wages finally rise in Japan but are such small rises the future for us too?

  1. I frankly find iy astonishing that we have followed the same policies of Japan and are getting the same results. Who could possibly have foreseen that? As to NAIRU and the Phillips curve, both are missing presumed dead and unmourned.

  2. Shaun, good point about the ludicrous Philip’s Curve and how it simply doesn’t apply in Japan – so why do economists still believe in it!!!
    Japan is now in year twenty eight of its recession and fight against deflation, having made the mistake of bailing out its banks instead of the economy following the bursting of the property bubble, it was only to be expected that the west would repeat the same error in 2008 given their control over politicians.Property prices in Japan have fallen dramatically in that time, but in the west they are in many countries higher than 2007 levels.

    Question is, do we have another eighteen years of this QE/ZIRP and house price inflation to go or will something snap before then???

    • Hi Kevin

      A major difference between the UK and Japan is the way that house prices behaved after a large economic shock. Theirs fell but we would not let ours fall for any length of time. Another is the way that inflation behaves in that almost whatever happens Japan does not get much of it whereas we do. When we were Japan like and had little or no inflation for a while it sent our economics establishment into a panic. But Japan still gets drinks out of 100 Yen machines whereas we by now would be getting a thimble full if we were lucky and not a can.

      Which will turn out to be worse only time will tell.

  3. hello Shaun,

    so another example of economics mimicking astrology !

    were is the august body examining these so called laws and theories ?

    and Japan is making money , something we in the UK fail to appreciate 😉

    so it’s doubtful that Banks run the place , eh?

    How’s that GNP ratio going ?


    • Hi Forbin

      The banks in Japan did get their bailouts but in terms of house prices they did not get the implicit bailouts that the Bank of England has given ours. As to the Phillips Curve I saw it mentioned only yesterday by an inhabitant of the research department of one of our universities. It is hard not to feel sorry for students racking up student debt to be taught something which is no longer of any use.

  4. Shaun,
    Thank fors for the global perspective and variant economic outcomes. I had listened to the Opoid podcast last week and indeed I agree, a very causal link is due. The summary of the reportage was that opiods are a disease of the working population in the USA, with many GP’s overprecribing those morphine drugs as part of the “free-market” healthcare system in the states, where medicare results in drugs and procedures, sometimes unnecessary to justify the ridiculous cost of the health insurance in the first place.

    I can’t wait for this weeks round-up of the Carney Show, on tenterhooks… 🙂

    Paul C.

    • It is odd is it not that dangerous drugs like opioids can be prescribed with catastrophic results in some legislations whereas extremely similar drugs are illegal under the same regimes. One is respectable the other is not.

      Next time you find yourself in a cultural institution connected with the name Sackler find out where the money came from. Some came from opioid drugs and some did not.

      Would you patronise the Guzman or the Escobar Gallery?

      • Oh, I did not know.

        The Sackler family, some of whom are based in London, owe much of their wealth to OxyContin, the prescription painkiller first launched in 1996. The drug is made by Purdue Pharma, which is wholly owned by the Sackler family. It has been linked to the opioid crisis now killing more than 100 people a day in the US and spawning millions of addicts.

        Not much different to Banking really, the business which is a sap to GDP, a tax on hard work and yet they too have become very rich, selling us money, the other addiction, more rampant than morphine.


  5. Pingback: That’s socialism for you | Doctissimus @ Port Urla

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