Data supporting the concept of continued deflation in Japan

Bloomberg's Jason Clenfield has a piece out today describing how Japan's business have been coping with economic weakness by cutting wages rather than through layoffs. This is not really a surprise given that "lifetime employment" is a concept that still has some support in the country. However, the piece refers to OECD data showing "Japanese salaries have fallen in seven of the last 10 years". This is the definition of a deflationary environment, and would help explain how export businesses maintained profitability levels in spite of stagnant exchange rates and intense competition in the US market. It also helps explain why domestic consumption has been weak as falling wages inevitably reduce consumer spending.

The Bloomberg piece also explains that

"Full-time workers typically get about a quarter of their yearly wages in two lump payments, the amount of which is set at the start of each business year. The so-called bonuses give companies room to adjust labor costs when profits fall. Summer payments will plummet an average of 7.3 percent this year, according to an estimate last week by Tokyo’s Dai-Ichi Life Research Institute. The drop would be the biggest since comparable data became available in 1991".

It will be difficult for the country to see positive GDP growth given both declining wages and declining exports. Japanese consumers will be spending their funds carefully to ensure that they can make ends meet when they expect further pay cuts.