Japan’s real wages fell sharply in November 2025, marking the fastest decline since last January, according to preliminary data from the Ministry of Health, Labour and Welfare. The drop was largely influenced by a sharp fall in one-off bonus payments, highlighting the ongoing challenge of inflation outpacing wage growth in the country.

Real Wage Decline

Inflation-adjusted real wages, a key measure of household purchasing power, fell 2.8% in November year-on-year, matching the decline recorded in January 2025 and coming close to the September 2023 figure of 2.9%. This decline also extended a losing streak for 11 consecutive months.

The fall was worse than October’s revised 0.8% decline, underscoring that Japanese households continue to face pressure as the cost of living rises faster than pay.

Nominal Wage Growth Slowest Since 2021

Average nominal wages, or total cash earnings including bonuses, rose only 0.5% year-on-year to 310,202 yen ($1,983), the slowest pace since December 2021. The figure was significantly impacted by a 17% drop in special payments, mostly one-time bonuses, which tend to fluctuate outside the traditional summer and winter bonus months.

A labour ministry official noted that November’s preliminary data typically underrepresent winter bonus payments, as only a portion of firms report their figures early.

Base Salary and Overtime Trends

Excluding bonuses, base salaries rose 2.0%, slightly slower than October’s 2.4% growth but consistent with September. Overtime pay, often used as a gauge of private-sector strength, increased 1.2%, down from 2.1% in October but better than September’s 1% growth.

Despite the modest wage gains, consumer inflation remained high at 3.3%, outpacing both base pay and total earnings. The inflation rate used to calculate the real wage indicator includes fresh food prices but not rent costs, making it higher than the core inflation rate.

Bank of Japan’s Response

The Bank of Japan (BOJ) raised its policy rate to 0.75% from 0.5% last month, the highest level in 30 years, signaling its confidence that firms will continue to raise wages steadily through annual labour-management talks. The BOJ has emphasized the importance of maintaining steady wage growth to keep inflation in check while managing borrowing costs.

Meanwhile, Japan’s largest union group, Rengo, has targeted an overall pay increase of at least 5% in 2026, reflecting ongoing pressure to improve household purchasing power amid persistent inflation.

Implications for the Japanese Economy

The November wage data highlights several key trends:

• Household purchasing power remains under pressure, with inflation exceeding nominal wage growth.
• Bonus payments continue to play a significant role in total earnings volatility.
• Firms are expected to raise base pay steadily, but real wage growth remains negative due to sustained inflation.
• The BOJ is likely to continue a cautious approach to monetary policy, balancing rate hikes with the need to support wage-driven consumption.

Analysts note that unless wages accelerate faster than inflation, consumer spending may remain constrained, potentially slowing Japan’s broader economic recovery despite rising corporate profits