February 4, 2015, 17:00 JST

Wages started to grow again at the close of 2014

The news from the December wage report was encouraging. The regular wage (basic+overtime wage) rose by 0.4% year on year, accelerating from 0.1% from November. The year on year is growth is still rather pitiful, but it is relieving to confirm that the wage disinflation that took place after the last summer was short-lived. Including the winter bonus, the total wage grew by 1.6% year on year in December. Regular wage for manufacturers grew by 1.2% year on year in December, up from 1.1% in November. 

 Source: MHLW, JMA.

 Source: MHLW, JMA.

In our view, the wage inflation in Japan is likely to accelerate in the next 12 months. At 3.4%, Japan's unemployment rate is the lowest in the last 18 years. Companies in Japan are already struggling to fill their vacancies. In December 2014, there are almost twice as many new job offers as new job applicants. 

 Source: MHLW, JMA.

There are signs that Japanese manufacturers are starting to expand their domestic production and that will require larger labor force. In our view, the Japanese labor market is starting to glow red hot.

 Source: METI, 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 is just a matter of time that the labor force realizes their advantageous position and start demanding higher wages. We expect wage growth to gradually accelerate to over 1% year on year by the end of 2015.