Japanese real wages remain stagnant. Adjusted for inflation, wages fell 0.1% in September compared with a year earlier, the fourth consecutive monthly decline.
But within the data there are early signs of wage pressure that we believe will mount in the coming months, a trend that presents opportunities for investors:
- September per-employee nominal wage growth was 0.9% year-on-year, the highest since July 2016. All components – fixed wages, overtime payments, and bonuses accelerated in September. Part-time wages rose 1.1% compared with higher paid, full-time workers’ wages, which increased by 0.6%. About 30% of the workforce is part-time, and we expect their wages to increase much more than full-time workers'.
- Japan’s working age population is expected to decline by 1% annually for the next five years. This will intensify labor shortages already exacerbated by a shift to a more labor-intensive, service-oriented economy, and government initiatives to reduce working hours to promote better work-life balance. Demand for labor is the highest since the 1970s, with 1.52 vacancies per person seeking work.
- Prime Minister Shinzo Abe’s new government is considering increasing tax breaks for companies that raise wages, to achieve a 3% increase in overall salaries.
We believe Japan's labor shortage will keep intensifying over the next 2–3 years, at least until investment in advanced automation technologies fill the gaps. This suggests real wages could recover, and supports our investment theme to invest in firms benefiting from labor shortages. These include companies offering education, workforce re-training and automation solutions.