Japan government: Nominal Japanese wage likely down 0.7pct next fiscal year

Japan Friday unveiled a more detailed economic forecast for the next fiscal year containing a grim prediction that Japanese wages will likely fall for the fourth straight year, matching the previous longest stretch of decline on record.

The government predicted that wages of Japanese employees–or the sum of labor compensation and social security service costs paid for them by their employers- -will likely fall 0.7% to Y250.6 trillion in the year starting April.

The figure, not adjusted for price changes, is much lower than an expected worst-on-record decline of 3.9% in the current fiscal year, a Cabinet Office official said at a briefing. Yet the drop would be the fourth straight year of decline, matching the previous record fall spanning four years through fiscal 2004, in the comparable data available since fiscal 1956, he said.

The wage outlook is likely to add to concern that Japan’s deflation could become even more entrenched in the coming months, threatening to snuff out the nation’s fragile economic recovery.

Wages per employee will likely decrease a little more sharply by 1.0% in the next fiscal year partly due to an anticipated slight increase in the number of workers, the government added. That would also be the fourth consecutive year of decline.

On the overall economy, the government left unchanged its previous projection of 1.4% price-adjusted growth for next fiscal year in the latest forecast, which is a more detailed version of the one announced in December.

Yet falling income may pose some risks to that scenario as it could fuel deflation by prompting consumers to reduce or hold off on spending. If Japan’s already sluggish domestic demand weakens more, that would not only damage corporate revenues but also force companies to continue reducing prices to lure buyers, further feeding the negative cycle. Deflation also pushes up the real debt burden of consumers and companies, making them even more wary of spending.

The government stuck to its prediction that the gross domestic product deflator–the broadest gauge of nationwide price trends–will fall 1.0% for the 13th consecutive year of decline. The country’s nominal growth rate, which isn’t adjusted for price changes, will likely come to 0.4%, the government repeated.

 

Category: Japan