March 3, 2015, 11:30 JST

The wage inflation has finally arrived

Wages seems to be finally starting to rise in Japan. In January, regular wages (basic and overtime wages) rose by 0.9% year on year. Basic wages rose by 0.8% year on year. While these growth seem pitiful from an international observer, these growth rates are in fact the highest for each since March 2000 when Japan was enjoying the IT boom. Total wages including bonuses rose by 1.3% year on year in January.

Source: MHLW,JMA

By industry, manufacturing workers are enjoying an above-average wage growth. Regular wages in the manufacturing industry rose by 1.7% year on year. Among non-manufacturers, the wage growth among healthcare workers is becoming notably high. In January, regular wages in the healthcare industry rose by 2.0% year on year. The growth rate is the highest rate for healthcare workers since 2001. 

 Source: MHLW,JMA

In our view, the wage growth in Japan is likely to accelerate further in the next 12 months. At 3.6%, Japan's unemployment rate is one of the lowest rate in the last 18 years. Companies in Japan are struggling to fill their vacancies. In January 2015, there were almost twice as many new job offers as new job applicants. 

 Source: MHLW,JMA

While the demand for labor is growing, the supply of labor is shrinking. As baby boomers retire, Japanese work age (15-64) population is shrinking at the rate of 1% each year. It seems to us just a matter of time that the labor force realizes their advantageous position and start demanding even higher wages. We expect the wage growth to accelerate to over 1% year on year by the end of 2015.