Japan’s nominal wages rise at fastest pace in about 30 years

A persistent labour shortage has been a major driver of Japan’s recent wage gains.

Japanese workers’ nominal wages rose at the fastest pace in almost three decades, underscoring sustained momentum in pay growth that will keep the Bank of Japan (BOJ) on track to hike interest rates as soon as December.

Nominal wages rose 4.6% in September compared with a year earlier, marking the largest gain since 1997, the Labour Ministry reported on Nov 6. Base pay increased 3.7%, while a more stable gauge excluding bonuses, overtime and sampling distortions rose by a record 3.1% for full-time workers.

Real cash earnings – adjusted for inflation excluding rents – climbed 2.2% from a year earlier, accelerating from a revised 1.6% gain in August and beating the consensus estimate of 1.3%. Economists had expected growth to slow due to fewer working days.

The data come as labour unions prepare for the next round of annual wage negotiations that will culminate in March, with early anecdotal evidence suggesting momentum built over the last few years will be maintained.

The largest labour union federation in October urged its members to demand wage increases of around 6%, setting a more ambitious target than in 2026.

Workers represented by the group have secured raises exceeding 5% for three consecutive years, signalling that pay gains are becoming the norm in a country long plagued by wage stagnation after an asset bubble burst in the the early 1990s, ushering in years of deflation.

“I expect wage increases in next year’s wage negotiations to come in at around 5%, roughly the same pace as in 2026,” said Yasunari Tanaka, researcher at Mitsubishi Research Institute.

Sustained upward pressure on wages is expected to keep the BOJ on track to keep raising its benchmark rate for some time.

The median economist forecast puts the terminal rate for the current cycle at 1.75%, implying two more quarter-point hikes.

BNP Paribas and JPMorgan Securities are among those forecasting the benchmark rate will reach 2.5%.

Bloomberg economist Taro Kimura said: “Wage growth is likely to accelerate next year as unions seek bigger pay rises in the next annual shunto negotiations. But wobbling AI-related stocks argue for caution. Our baseline has three more 25-basis-point hikes in December, March and July, taking the policy rate to 2%.”