In an annual white paper on Tuesday the government underlined the need to take all possible measures to realize wage increases that outpace inflation.

Although mainly major companies have continued to raise wages, consumption recovery remains weak due to rising prices, said the Annual Report on the Japanese Economy and Public Finance for fiscal 2025, which was submitted to the day's Cabinet meeting by Economic and Fiscal Policy Minister Ryosei Akazawa.

It stressed that, amid concerns over risks from the U.S. high-tariff policy, now is a turning point for whether Japan can transform its economy into a growth-oriented one based on wage hikes.

Prolonged high prices for food and other goods have pushed down consumer sentiment and real wages, the white paper analyzed. Furthermore, it said that predictions for continued price climbs and low expectations for lasting wage hikes have curbed consumption.

Price levels predicted by households have risen. According to a Bank of Japan survey conducted from January to March this year, the expected rate of inflation one year later was around 10%, and the expected average rate of inflation over the next five years stood at around 5%.

As a result, consumer spending, which accounts for more than half of Japan's gross domestic product, has continued to lack strength compared with wage and income growth, the paper explained.

To realize a powerful recovery of consumption, stable price climbs and sustained wage hikes that surpass them are essential, it added.