Japan’s Average Cash Earnings YoY for November 2025 increased to 1.90%, up from 1.30% in October, aligning with consensus forecasts from the Sigmanomics database. This figure reflects a modest acceleration in wage growth after a notable slowdown last month. Over the past year, earnings growth has averaged 2.90%, with peaks above 4% earlier in 2025, indicating a volatile but generally positive trend.

Drivers this month

• Service sector wage gains contributed approximately 0.70 percentage points.
• Manufacturing wages showed a moderate increase, adding 0.50 percentage points.
• Temporary slowdown in bonuses and overtime pay limited upside.

Policy pulse

The 1.90% wage growth remains below the Bank of Japan’s implicit inflation target of 2%, suggesting continued monetary accommodation. The BoJ’s yield curve control and low interest rates support labor market stability but have yet to trigger a sustained wage-price spiral.

Market lens

Immediate reaction: The Japanese yen (JPY) appreciated modestly by 0.15% against the USD in the first hour post-release, reflecting cautious optimism. Short-term government bond yields remained stable, while equity markets showed mild gains in wage-sensitive sectors.

Average Cash Earnings YoY is a core indicator of household income growth and domestic demand potential. Japan’s labor market remains tight, with unemployment steady near 2.50%. Inflation, measured by the CPI, stands at 1.80%, slightly below the BoJ’s 2% target. Wage growth is a critical factor for sustaining inflation and consumption.

Monetary Policy & Financial Conditions

The Bank of Japan maintains an ultra-loose monetary stance, with the policy rate at -0.10% and yield curve control targeting 10-year JGB yields near 0.25%. Financial conditions remain accommodative, supporting credit growth and investment. However, subdued wage growth limits inflationary pressures.

Fiscal Policy & Government Budget

Japan’s fiscal policy continues to emphasize stimulus through infrastructure spending and social welfare enhancements. The government’s budget deficit remains elevated at approximately 6% of GDP, reflecting ongoing support for economic recovery and demographic challenges.

External Shocks & Geopolitical Risks

Global supply chain disruptions and geopolitical tensions in East Asia pose downside risks. Trade uncertainties with China and the US impact export-driven sectors, indirectly influencing wage dynamics. Energy price volatility also affects corporate cost structures and wage negotiations.

Drivers this month

• Service sector wage increases (0.70 pp) led the rise.
• Manufacturing wages added 0.50 pp, reflecting export resilience.
• Bonus payments remained flat, limiting further gains.

Policy pulse

The 1.90% growth remains below the BoJ’s inflation target, reinforcing expectations for continued monetary easing. Wage growth is insufficient to trigger policy tightening in the near term.

Market lens

Immediate reaction: The JPY strengthened slightly, while 2-year JGB yields held steady. Equity markets in consumer discretionary sectors gained modestly, reflecting improved wage-driven consumption prospects.

Looking ahead, wage growth in Japan faces a complex interplay of factors. The labor market remains tight, but demographic headwinds and subdued inflation expectations constrain wage bargaining power. External risks from geopolitical tensions and global economic slowdown could dampen momentum.

Bullish scenario (20% probability)

Stronger-than-expected corporate profits and labor shortages push wage growth above 3% by mid-2026. This triggers a virtuous cycle of consumption and inflation, prompting BoJ to consider policy normalization.

Base scenario (60% probability)

Wage growth hovers around 2%, supporting steady but moderate consumption growth. Inflation remains near target, and monetary policy stays accommodative with gradual adjustments.

Bearish scenario (20% probability)

External shocks and weaker global demand cause wage growth to stall below 1.50%, undermining inflation and consumption. The BoJ extends easing measures, risking financial market distortions.

Japan’s Average Cash Earnings YoY data for November 2025 highlights a tentative recovery in wage growth after recent volatility. While the 1.90% increase is encouraging, it remains below the levels needed to sustain robust inflation and domestic demand expansion. Policymakers face a delicate balance between supporting growth and managing financial stability amid external uncertainties. Market participants should monitor wage trends closely as a bellwether for Japan’s economic trajectory.

Indicator vs. USDJPY Since 2020

Since 2020, Average Cash Earnings YoY and USDJPY have shown a moderate inverse correlation. Periods of rising wage growth often coincide with JPY appreciation due to expectations of tighter BoJ policy. For example, the February 2025 peak in wage growth at 4.80% aligned with a 3% JPY gain versus USD. This relationship underscores the importance of wage data in currency market dynamics.

Japan’s wage growth is stabilizing but remains insufficient to drive strong inflation or rapid policy shifts. Monitoring upcoming data will be crucial for assessing the sustainability of this trend.