ISTANBUL

As Japan grapples with declining real wages for the last nine months amid its fight against ramping inflationary pressures, the Bank of Japan (BoJ) finds itself in an inflation-recession dilemma, an Asian markets analyst told Anadolu.

Sadi Kaymaz said wages have become the most decisive factor in Japan’s monetary policy, which means that the timing of rate hikes will depend on developments on the real wage front.

Real wages in Japan are lagging behind price increases, weakening household purchasing power. As inflation rises, wage increases come short and put pressure on household budgets -- one of the main drivers of domestic demand.

Kaymaz stated that wage growth has mostly slowed since the 1980s in Japan and occasional increases of more than 5% have been seen as a result of nominal wage negotiations.

He emphasized that the rise in average nominal wages increased to 1.9% but considering the Consumer Price Index (CPI) exceeded 3%, real wages fell short and remained negative.

Japan’s real wages fell 1.4% year-on-year in September, as per data released Thursday.

“Inflation climbed to 3.4% in September and real wages’ decline reached its ninth month -- the negative trend in real wages reduced purchasing power of households while rice prices nearly doubled and other food items increased 7–8%,” he said. “In a developed and wealthy economy like Japan’s, such difficulties are at the top of public agenda.”

Kaymaz said Japan had a deflation period after the asset bubbles burst in the early 1990s and it has been trying to recover by creating inflation via monetary and fiscal expansion.

He said Japan has largely achieved its inflation target, currently, but BoJ members want to make inflation permanent and sustainable at 2%.

Kaymaz stated that Japan’s new Premier Sanae Takaichi campaigned on sustainable inflation supported by wage increases, following in her mentor and former Premier Shinzo Abe’s footsteps, advocating for stimulating growth through fiscal expansion.

As for the BoJ, it is focused on wage dynamics as one of the key determinants of policy.

“The BoJ is trying to create a kind of wage-price spiral for lasting inflation, something that is frequently emphasized in their reports,” he said.

The bank left rates unchanged at its last meeting on Oct. 30 as it needs more time to examine wage and price developments.

“Ultimately, the BoJ is concerned that the decline in purchasing power will eventually jeopardize inflation gains,” he noted.

Kaymaz said BoJ Governor Kazuo Ueda placed wage hikes at the center of policy discussions since taking office in 2023, noting that he clearly said the bank is in no rush to tighten policy without confirming persistence in wage trends.

“Ueda frequently underscores the hardships households face due to high inflation, and he said time and again rapid increases in basic food prices shook consumer purchasing power and confidence, but wages are on the rise, albeit gradually,” he said. “The wage became the most decisive factor in Japan’s monetary policy.”