Structural shifts in Japan’s labour market
With Japan on the cusp of finally exiting deflation, wages are rising amid extreme labour shortages. According to preliminary figures from trade confederation Rengo, workers’ average wages at the 805 unions surveyed will rise by 3.8% in the coming fiscal year, the highest jump since 1992 and well above consensus expectations. Subsequent wage deals may bring this average down as many smaller companies yet to report are likely to be less generous than their larger counterparts captured in the mid-March figure, but the wheels are now in motion in terms of setting the stage for a more consistent wage growth narrative going forward.
One of the most interesting pieces of the real-wage growth story is the generational shift — the steady breakdown in the lifetime employment system in Japan. This is leading to increased labour mobility as people start to change jobs more frequently in search of higher compensation and more flexibility. In addition to the severe labour shortages, this mobility helps to explain why Japan is experiencing the highest wage hikes in three decades — competition for quality labour is now intensifying, and companies are having to respond.
It's not yet clear how these latest wage figures will impact monetary policy. In December, the Bank of Japan (BOJ) unexpectedly lifted its long-standing yield curve control (YCC) policy to allow 10-year government bond yields to rise to 50 basis points (bps), from a target of 25 bps. While global economic uncertainty may delay further relaxation or a full exit from the YCC regime, work by our macro strategists suggests that current labour and wage dynamics could eventually force the central bank’s hand.