Japan’s real wages fell by 1.2% year-on-year in February, marking a second consecutive monthly decline. This follows a revised decrease of 2.8% in January, reflecting the strain on household purchasing power due to high inflation.
The consumer inflation rate, which includes fresh food but excludes rent, increased by 4.3% in February, slightly lower than January’s 4.7%. Although nominal earnings improved, ongoing inflation diminished wage increases.
Bonus Surge Drives Earnings
Total cash earnings rose by 3.1% year-on-year in February, accelerating from a revised 1.8% increase in January, driven by a 77.4% surge in bonuses.
Overtime pay, an indicator of business activity, increased by 2.2% in February, up from January’s revised 1.5%. Regular pay grew at a slower rate of 1.6%, down from 2.1% in the previous month.
Wage data may improve from April as the effects of this year’s spring negotiations are realised. Rengo, Japan’s largest trade union federation, indicated that companies agreed to an average pay increase of 5.4% for 2025, marking the largest rise in over thirty years.
The data already laid out paints a clear picture. Despite nominal earnings showing a strong year-on-year increase in February, the negative real wage figures strip away any illusion of boosted consumer strength. Essentially, while pay packets might be getting marginally fatter in yen terms, prices have outpaced wage growth. Households are left with less in real purchasing power, and this is now the second month in a row of that trend continuing.
Inflation Pressures and Wage Growth
The depth of inflation — especially with volatile items like fresh food included — still running above 4% is highly telling. It forces employers into a tight corner: offer higher wage growth, as they’ve begun to do through bonuses and spring agreements, but risk margin pressures. Yet those employers face mounting pressure to attract and retain workers while input costs stay high. Bonus jumps, such as the 77% year-on-year increase in total bonus payouts, can mask flatlining growth elsewhere, but they are not consistent or structural compensation.
Now, from our point of view, what matters more is the story behind regular and overtime pay. Regular pay growth slowing to 1.6% shows softness. This component tells us about core wage stability — it’s not volatile, like bonuses. Slippage here suggests sluggish hesitancy among employers to commit to durable cost increases. Overtime, however, moving from 1.5% to 2.2% gives an early signal that business activity might have picked up slightly, though whether it’s sustainable or just short-term catch-up is unclear. The two measures pulling in different directions means sensitivity to upside or downside surprises in next month’s data may be stronger than usual.
With Rengo’s negotiated wage growth locked in to take effect from April, markets are likely treating these figures as a margin-of-error phase before more impactful measures kick in. So we find ourselves at a peculiar junction where the backward-looking numbers provide confirmation of strain, but forward-looking expectations hinge on whether those agreements will translate into actual year-round fixed pay increases or fade into one-off adjustments.
Following this, attention needs be paid to whether the increases out of the spring sessions will spill into subsequent months structurally. Pay increases tied to bonuses or initial headlines won’t anchor inflation expectations or consumer spending on their own. What matters is the recurring month-on-month implications for baseline wages — and how this flows into service inflation and job-switching behaviour. Short-term traders may find that temporary boosts in earnings could prompt overreactions or mispriced optimism unless accompanied by stable, repeated trends in core pay growth.
There’s opportunity, certainly, but also fragility in interpreting the strength of momentum purely from headline wage readings. Waiting for downstream effects on inflation components that are sensitive to domestic demand may help signal whether the recent agreements ripple through to sustained, generalised growth.
