Japan May real wages fall at quickest pace in nearly five years

FILE PHOTO: A worker walks in a factory at the Keihin industrial zone in Kawasaki, Japan February 17, 2016. REUTERS/Toru Hanai

TOKYO (Reuters) - Japan’s May inflation-adjusted real wages dropped at the fastest pace in nearly five years, government data showed on Tuesday, in a sign of labour market stress as the economy takes a heavy blow from the novel coronavirus pandemic.

The world’s third-largest economy is bracing for its worst postwar slump in the quarter through June, with economists expecting an annualised contraction of over 20% after a massive demand shock due to lockdown measures in response to the virus outbreak.

Real wages, a gauge of household purchasing power, tumbled 2.1% in May from a year earlier, labour ministry data showed, falling at the fastest pace since a 2.8% decline in June 2015.

“The impact from the coronavirus led to a reduction in overtime pay which caused real wages to fall a lot,” a labour ministry official told Reuters.

Overtime pay, a barometer of strength in corporate activity, saw its biggest decline since comparable data became available in January 2013, slumping 25.8% in May from a year earlier, down for a nine straight month.

The monthly wage data showed nominal total cash earnings dropped 2.1% in the year to May, also seeing their largest fall since June 2015, following a revised 0.7% drop in April.

Regular pay - or base salary, which makes up most of total cash earnings - was up, rising 0.2%, the data showed. One-off special payments shed 14.0% following a downwardly revised 6.4% gain in April.

The ministry defines “workers” as 1) those who were employed for more than one month at a company that employed more than five people, or 2) those who were employed on a daily basis or had less than a one-month contract but had worked more than 18 days during the two months before the survey was conducted, at a company that employs more than five people.

Reporting by Daniel Leussink; Editing by Hugh Lawson