Japan’s labour market remained tight in June, sustaining upward pressure on wages as companies compete for workers.
The unemployment rate dropped to 2.5% in June from 2.6% in May, contrary to economists' expectations of a steady 2.6%. The number of employed individuals increased by 370,000, led by gains among women, while the number of unemployed rose by 20,000.
An ageing and shrinking workforce has led to chronic labour shortages, prompting companies to agree to the highest wage gains in over three decades during annual spring negotiations, with pay rises exceeding 5%.
“The labour market remains tight,” said Takeshi Minami, economist at Norinchukin Research Institute. “That will certainly add upward pressure on wages and smaller companies don’t have a choice but to raise wages to secure manpower.”
The labour ministry has proposed a record 5% increase in the hourly minimum wage for this fiscal year, indicating widespread wage growth.
The Bank of Japan (BOJ) is seeking evidence that sustained wage increases will boost consumption and demand-led price growth, potentially allowing further normalization of monetary policy. The BOJ will detail its quantitative tightening plans after a two-day meeting on Wednesday, with about 30% of surveyed economists expecting an interest rate hike.
In a separate report, the job-to-applicant ratio edged lower to 1.23, the lowest since March 2022, while the ratio of new job openings-to-seekers rose to 2.26, indicating ongoing struggles for companies to fill positions.
Labour shortages are particularly challenging for smaller companies. In the first half of 2024, 182 companies went bankrupt due to manpower constraints, the highest ever recorded, with 80% of these firms having fewer than 10 employees, according to Teikoku Databank.
Key Takeaways:
- Japan’s unemployment rate dropped to 2.5% in June from 2.6% in May.
- Labour shortages have led to the highest wage gains in over three decades.
- The labour ministry proposed a record 5% increase in the minimum wage.
- BOJ is monitoring wage increases for potential monetary policy adjustments.
- Job-to-applicant ratio fell to 1.23, while new job openings-to-seekers ratio rose to 2.26.
- Smaller companies are particularly impacted, with a record number of bankruptcies due to manpower constraints.
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