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This giant economy wants its workers to get inflation-busting pay rises

<i>Akio Kon/Bloomberg/Getty Images</i><br/>Japan's leader wants businesses to hike workers' pay at a level above inflation. People here are walking walk along a street in Tokyo
Bloomberg via Getty Images
Akio Kon/Bloomberg/Getty Images
Japan's leader wants businesses to hike workers' pay at a level above inflation. People here are walking walk along a street in Tokyo

By Emiko Jozuka, Kathleen Benoza and Michelle Toh, CNN

Japan is grappling with the biggest drop in living standards in nearly a decade as inflation continues to soar.

The world’s third largest economy reported its worst real-wage decline in more than eight years on Friday, a day after its leader asked businesses to hike workers’ pay at a level above inflation.

Japan saw a 3.8% year-on-year fall in inflation-adjusted wages in November, data published by the Ministry of Health, Labor and Welfare showed. It’s the biggest fall since May 2014, when a consumption tax hike at the time caused a 4.1% decline, according to data published by the ministry.

The latest drop comes as Japanese Prime Minister Fumio Kishida urged bosses to accelerate raises for workers, warning that the economy risked falling into stagflation if wage rises continued to fall behind price increases. Stagflation describes a period of high inflation and stagnant economic growth, which undermines people’s purchasing power.

“The core of a virtuous economic cycle lies in wage growth, and must be realized at all costs. Companies must generate profits and then properly distribute them to workers,” Kishida said Thursday while speaking at a New Year gathering hosted by Japan’s three major business lobbies. “Consumption will grow, business investment will grow and further promote economic growth.”

Raising wages by 3% or more a year is a core goal of Kishida’s administration. The prime minister, who took office in late 2021, noted that while corporate profits had ballooned in the past 30 years, salaries failed to keep pace with that growth.

Japan’s largest labor organization, known as Rengo or the Japanese Trade Union Confederation, is now demanding wage increases of 5% at this year’s talks with the management of various companies, Kishida added.

Wages in Japan have largely hovered at the same level over the last decade, according to the latest data published by the Organisation for Economic Co-operation and Development (OECD). Meanwhile, the average wage in many other countries has risen during the same period, OECD data shows.

Rising commodity prices and the weak yen are prompting companies to pass on higher costs to shoppers at the fastest pace in decades in Japan.

The country’s core consumer price index, excluding fresh foods, rose 3.7% in November compared to a year earlier. It was the highest increase since December 1981, according to a December report by the Daiwa Institute of Research.

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