Japan's Job Market Tightens: A Boon for Wages, Says BOJ

Japan's job market has been experiencing a significant tightening, with labor demand outstripping supply, particularly for skilled workers. This trend, as highlighted by the Bank of Japan (BOJ), is a positive sign for wage growth in the country. The BOJ's latest report, "Help wanted: The long-term labor tightening trend by country," underscores the long-term trend of labor market tightening in Japan, with vacancies rising across all sectors.

The demand for high-skilled workers has been a significant driver of wage increases in Japan. According to a BOJ working paper, "Job advertisement, Alternative data, Posted wages, Labor demand, Skill requirement," the decline in the job-filling rate is partly driven by an increase in skill requirements, which has a complementary effect in raising demand for high-skilled workers. This, in turn, has led to posted wages rising under tightening labor market conditions.

Labor unions play a crucial role in negotiating higher wages in a tightening job market. The Japanese Trade Union Confederation (JTUC) has been at the forefront of demanding pay hikes, with its biggest labor union deciding to demand pay hikes of 5 percent or more next spring. This push for higher wages is supported by the recent trend of wage hikes in Japan, with the average monthly pay increase at Japanese businesses this year rising to a record 11,961 yen ($79), a government survey showed.

Government policies, such as minimum wage increases, also contribute to wage growth in Japan. The growth in the minimum wage has contributed to the increase in average wages, with both the value and rate of wage increases exceeding the previous year for the third straight year. However, real wages in Japan have been falling, indicating that pay hikes still have not caught up with rising prices.

The rise in job vacancies and the decline in the job-filling rate have impacted wage negotiations and settlements. As firms face greater difficulties in hiring workers, they are increasingly offering higher wages to attract and retain talent. This trend is expected to continue, with the BOJ predicting that the unrealized output due to labor shortages could reach 0.5 percent to 1.5 percent of GDP across economies in 2023.

In conclusion, Japan's tightening job market, driven by the increasing demand for skilled workers, is a positive sign for wage growth in the country. Labor unions and government policies play a crucial role in negotiating higher wages, while the rise in job vacancies and the decline in the job-filling rate have contributed to wage increases. As the BOJ predicts, the labor market tightening trend is expected to continue, with potential benefits for wage growth and the overall economy.