Wages fell in July at their fastest pace in three years, hampering an expansion in consumer spending, the labor ministry said Monday.
Monthly wages, including overtime pay and bonuses, dropped 1.9 percent for their eighth straight monthly decline.
The failure of the strengthening job market to translate into higher pay is hindering growth in consumer spending, which accounts for more than a half of the economy. That leaves Japan reliant on exports at a time when a U.S. housing recession is threatening global growth.
"Falling wages could jeopardize the recovery in consumer spending, leaving Japan more dependent on foreign demand," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo, before the report was released.
One reason average wages have slipped since December is the replacement of retiring baby boomers with younger, cheaper employees. Another is the increased hiring of part-time workers, whose pay is on average less than half that of full-timers, Shinke said.
Average pay fell about 10 percent between 1997 and 2005. One in three workers is a part-timer today, compared with one in five a decade ago.
"Stalled wages is the main culprit for the weakness in consumer spending," Junko Nishioka, an economist at ABN Amro Securities in Tokyo, said before the report was released. "Without wage growth, we can't see acceleration in the economy."
An index of sentiment among midsize and small companies fell to 47.5 in August from 48.4 in the previous month, Shoko Chukin Bank reported last Thursday. About 70 percent of Japan's workers are employed at midsize and small firms.
"I can't help being pessimistic about the future of consumer spending, as these smaller companies don't have the strength to raise wages," Nishioka said. She expects wages to begin to increase after the fourth quarter.