Global Macro Service > Research Briefings > Japan

Wages slump ahead of consumption tax rise

  • ​We continue to believe that the upcoming rise in Japan’s consumption tax in October will have a milder impact than previous hikes. Still, we envisage disappointing wage developments recently will weigh on consumption spending over the coming quarters.
  • Cash earnings are down this year compared to 2018 and the outcome of the annual spring wage negotiations again fell well short of expectations. With the consumption tax rise imminent, the fall in wages is ill-timed.
  • In previous years, the government raised minimum wages to stimulate demand and support low-income households. But with higher minimum wages now affecting more workers, opposition from SMEs has grown. Despite this, thegovernment plans to increase minimum wages by more than 3% from October.
  • Higher minimum wages are expected to encourage productivity gains by pushing firms to become more efficient. This effect may gradually materialise, but we think there is a risk that job market mismatches will keep workers from finding new jobs despite the tight labour market, inhibiting the kind of income and economic growth the government is looking for.

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