Japan’s Wages Decrease 0.4%, First Drop in 10 Months

Wages in Japan fell for the first time in 10 months, sustaining deflationary pressures in the economy likely overtaken by China as the world’s second largest last year.

Monthly wages including overtime and bonuses decreased 0.4 percent in December from a year earlier to 548,381 yen ($6,687), the Labor Ministry said today in Tokyo.

The drop adds to concern that Japan’s recovery will depend on overseas demand this year after the economy was estimated to contract in the fourth quarter, hurt by the scaling back of government stimulus programs. Companies are also trying to cut costs to protect profits, weakening the prospect for pay increases, according to analyst Yonosuke Iwata.

“Companies still have a strong desire to cut personnel costs, and they’re cautious about portioning their recovering profits to their workers.” said Iwata, an economist at Dai-Ichi Life Research Institute in Tokyo. “The pace of improvements is likely to be slow” for earnings growth, he said.

Retail sales unexpectedly slumped 2 percent in December, contrasting with accelerating growth in exports and industrial production. A declining willingness to buy durable goods has dragged down consumer confidence to a 10-month low and household spending fell 3.3 percent in December, the biggest slide since February 2009.

Economic Contraction

Japan’s economy probably contracted at an annual 1.7 percent rate in the fourth quarter, according to the median estimate of eight economists surveyed by Bloomberg News. Growth surged 4.5 percent in the previous period as government incentives drove consumer spending.

The drop in wages was driven by a 1.4 percent decline in special pay, a category that includes bonuses. Winter bonuses, typically paid out in December, are often equivalent to several months of monthly salary.

At the same time, scheduled pay rose for the first time in 32 months, increasing 0.3 percent in December in a sign the underlying trend for household incomes is improving. Analysts consider the measure a more stable indicator of workers’ earnings opposed to the overall figure, which is influenced by overtime and bonuses.

The Labor Ministry is scheduled to be release a revision of today’s report on Feb. 16. Overall wages for November were initially reported to have fallen 0.2 percent and were later revised to show a 0.2 percent increase.

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