Real wages in Japan declined for a third consecutive year in 2024 as inflation continued to outpace pay increases, which have been generous on a nominal basis in recent years.

“Inflation turned out to be higher than projected mainly due to rising rice prices and stronger downward pressure on the yen,” said Saisuke Sakai, chief economist at Mizuho Research & Technologies.

Inflation-adjusted pay including bonuses fell 0.2% in 2024. The nominal increase was 2.9%, while consumer-price inflation for the year came in at 3.2%. Real wages fell 2.5% in 2023 and 1.0% in 2022. In 2021, they rose 0.6%.

"Backed by the weak yen, companies achieved record-high earnings and piled up profits while stocks performed well. Expectations were that they would share these gains with workers in 2024,” Sakai added.

Some signs of a rebound were evident in the numbers.

Inflation-adjusted pay rose in June, July, November and December, in part due to the payment of seasonal bonuses big enough to outpace price increases.

Real wages rose 0.6% in December year on year. Nominal wages in the same month rose by 4.8% to ¥619,580 ($4,044), the 36th straight monthly increase. Base salaries jumped by 2.7% to ¥265,303, the most in 32 years.

Real wages in Japan are at about the same level as they were decades ago. Although wage hike momentum finally picked up in the country in the past few years, inflation has become a drag on gains.

The growth in December came after a 0.5% rise in real wages in November.

Markets reacted to the strong year-end figure, with the yen strengthening from the ¥154-to-the-dollar range to the ¥153 range.

Japan has been struggling to promote economic growth and encourage inflation without destroying the spending power of households, some of which are becoming desperate after years of no real gains.

This puts the Bank of Japan in a difficult position. It must raise rates fast enough to keep the yen from weakening, which fuels inflation, without affecting overall economic growth.

Inflation in December hit 3.6%, while food inflation was 6.4% that month.

Sakai forecasts annual real wages to grow this year. Falls are expected in the first half followed by rising inflation-adjusted wages in the second half, as this year’s annual spring negotiations will likely lead to robust raises for workers.

Increases of more than 5% are being sought at large companies, and raises of more than 6% at smaller companies.

Some companies have unilaterally increased wages in an effort to stay competitive and growth-oriented. Fast Retailing, the owner of Uniqlo, upped starting pay by 10% earlier this year.

Smaller companies may not be able to keep up and they may fall short of the ambitious target being set. During last year’s spring wage negotiations, increases of 5.1% were achieved — a 30-year high — but companies with fewer than 100 union members only increased pay by 3.98%.

The central bank increased rates last month as it became more confident that the annual spring negotiations would yield strong raises.