If you think your last pay increase was bad, spare a thought for workers in Japan

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  • Japan’s unemployment rate sits at a multi-decade low, but that’s doing little to boost worker wages.
  • In the year to February, average cash earnings fell by 0.8%. In real, inflation-adjusted terms, the decline was even larger at 1.1%, the steepest drop in nearly four years.
  • Declining wages poses downside risks to household spending, the largest part of the Japanese economy.
  • Japan’s government plans to lift the nations sales tax in October this year. The last time it was increased the economy fell into recession.

If you thought your latest pay increase was bad, spare a thought for the workers of Japan.

Despite unemployment sitting at a multi-decade low of just 2.3%, wages, whether in real or nominal terms, are going backwards in early 2019.

According to Reuters, citing data from Japan’s labour ministry, nominal cash earnings slumped by 0.8% in the year to February, accelerating upon the 0.6% decline reported in the 12 months to January.

Thomson ReutersJapan cash earnings.

Regular pay, the largest component of most workers’ earnings, fell at an annual pace of 0.2%, a slight improvement on the 0.6% decline seen a month earlier. However, overtime pay fell 0.5% while special payments tumbled 34.2%, indicating a sharp drop in the size of bonus payments.

Making matters worse, including inflation, real worker wages fell by 1.1% over the year, the steepest decline over a comparable period since the middle of 2015.

Ouch, and you thought your pay increase was bad!

Falling wages is not the best news for the Japanese economy with household consumption making up over 50% of GDP.

In separate data released on Friday, household spending across the country rose by 1.7% in the year to February, below the 2.0% increase of a month earlier and median economist forecast for spending to lift by 2.1% over the year.

With wages going backwards, it poses risks for consumption in the coming months, potentially keeping downward pressure on both economic activity along with inflationary pressures.

Posing further downside risks for spending later in the year, the Japanese government plans to lift the nations sales tax from 8% to 10% in October. When the sales tax was increased from 5% to its current level of 8% back in 2014, the Japanese economy fell into recession, largely because of weakness in household consumption.

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