Japan: The impact of structural labour shortages on inflation
We have revised up our long-term wage and inflation projections based on a larger impact from structural labour shortages due to adverse demographic trends. Even after raising our wage growth assumptions by 0.5ppts on average over 2024-2030, however, we still forecast inflation only reaching 1.4% in 2030 – well short of the 2% target.
What you will learn:
- We now project higher base-wage increases for regular workers. We assume that wage growth set in the annual spring negotiations will rise gradually to 3% by 2030 from an average of 2.3% in the five years before the pandemic. Despite the rising need for wage increases to secure talented workers, Japan’s rigid employment system will constrain pay growth.
- We also revised up our projection for the hourly wage for part-time workers, which is more elastic to labour market conditions than wages for regular workers. We project hourly wages to increase as fast as in the late 2010s this year and then to accelerate, reaching close to 4% by 2030 due to the limited pool of additional labour supply.
- Gradual but persistent wage rises will boost inflation expectations accordingly. Given that Japan’s inflation expectations tend to be formed adaptively, we believe that inflation expectations will rise in accordance with actual price developments. In our baseline, we assume that inflation expectations will rise only gradually to 1.5% in 2030 from 1.1% in 2022.
Tags:
Related posts
Post
How Asia’s supply chains are changing | Techonomics Talks
Global supply chains have continued to expand, despite talk of deglobalization and nearshoring. US and Japan have started to de-couple from China, but other G7 countries grow more dependent on Chinese inputs. Several "hotspots" are emerging across Asia with multiple winning formulas.
Find Out More
Post
BoJ to raise its policy rate cautiously to 1% by 2028
We now project that the Bank of Japan will start to raise its policy rate next spring assuming another robust wage settlement at the Spring Negotiation. If inflation remains on a path towards 2%, the BoJ will likely raise rates cautiously to a terminal rate of around 1% in 2028.
Find Out More
Post
Japan inflation to rise to 1.8%, but downside risks are high
Reflecting a surprisingly strong Spring Negotiation result and weaker yen assumption, we have upgraded our baseline wage and inflation forecasts. We now project higher wage settlements will push inflation towards 1.8% by 2027. Uncertainty is high, however.
Find Out More