Japan’s overtime pay YoY growth for November 2025 registered at 0.60%, down from 1.30% in October and well below the 1.50% consensus forecast, according to the Sigmanomics database. This marks a modest improvement from the 0.40% reading in September but remains significantly below the 3.30% peak seen in August. The data reflects a cooling labor market amid broader economic uncertainties.

Drivers this month

• Manufacturing sector overtime hours declined due to subdued export demand.
• Service sector overtime remained stable, supported by domestic consumption.
• Seasonal adjustments and labor regulations limited overtime growth.

Policy pulse

The overtime pay growth rate remains below the Bank of Japan’s inflation target corridor, signaling limited wage pressures. This supports the continuation of the BOJ’s ultra-loose monetary policy stance despite inflationary concerns elsewhere.

Market lens

Immediate reaction: The Japanese yen (JPY) weakened slightly against the USD by 0.15% in the first hour post-release, reflecting disappointment versus expectations. Short-term government bond yields remained largely unchanged.

Overtime pay is a key labor market indicator, reflecting both demand for labor and wage growth pressures. Japan’s latest 0.60% YoY increase contrasts with the 12-month average of 1.70% since November 2024, indicating a slowdown in labor cost inflation. Core macroeconomic indicators provide context for this trend.

Labor market context

• Unemployment rate steady at 2.50%, near historic lows.
• Job-to-applicant ratio remains elevated at 1.40, signaling tight labor supply.
• Average hourly earnings rose 1.10% YoY, outpacing overtime pay growth.

Monetary policy & financial conditions

The Bank of Japan maintains its yield curve control policy, targeting 0% for 10-year JGB yields. Inflation remains subdued at 1.20% YoY, below the 2% target. Financial conditions are accommodative, with the Nikkei 225 index up 3.50% year-to-date, supporting corporate earnings but not yet translating into stronger wage growth.

Fiscal policy & government budget

Japan’s fiscal stance tightened slightly in Q3 2025, with government spending growth slowing to 0.80% YoY amid efforts to reduce the debt-to-GDP ratio. This fiscal prudence may dampen demand-driven wage pressures, including overtime pay.

Drivers this month

• Reduced export orders led to fewer overtime hours in manufacturing.
• Service sector overtime stabilized but did not accelerate.
• Labor market reforms capped excessive overtime to improve work-life balance.

Policy pulse

The subdued overtime pay growth aligns with the BOJ’s cautious stance. Wage growth remains insufficient to drive sustained inflation above 2%, reinforcing the central bank’s commitment to accommodative policy.

Market lens

Immediate reaction: The USD/JPY pair rose modestly by 0.15% post-release, reflecting market disappointment. Short-dated JGB yields remained flat, indicating stable expectations for monetary policy.

Looking ahead, overtime pay growth in Japan faces several headwinds and potential catalysts. The balance of risks suggests a cautious outlook with three scenarios:

Bullish scenario (20% probability)

• Stronger global demand boosts exports, increasing labor demand and overtime pay.
• Corporate profits improve, enabling higher wage growth.
• Government stimulus measures support domestic consumption and labor markets.

Base scenario (60% probability)

• Overtime pay growth remains stable around 0.50–1.00% YoY.
• Monetary policy stays accommodative, but wage pressures stay moderate.
• Fiscal tightening limits upside risks to labor demand.

Bearish scenario (20% probability)

• External shocks such as geopolitical tensions or supply chain disruptions reduce labor demand.
• Inflation remains subdued, discouraging wage hikes.
• Structural demographic challenges continue to weigh on labor supply and wage dynamics.

Structural & long-run trends

Japan’s aging population and labor force shrinkage exert long-term pressure on wage growth. Despite recent volatility, overtime pay growth remains muted compared to historical averages. Technological adoption and labor reforms may further moderate overtime reliance.

Japan’s November 2025 overtime pay YoY growth of 0.60% signals a cooling labor market amid mixed macroeconomic signals. While monetary policy remains supportive, fiscal tightening and external risks temper wage growth prospects. The data underscores the challenges Japan faces in balancing labor demand, inflation, and structural demographic shifts. Market participants should watch upcoming labor reports and BOJ communications closely for signs of policy shifts.

Since 2020, Japan’s overtime pay YoY growth has shown a moderate positive correlation with the USD/JPY exchange rate. Periods of rising overtime pay often coincide with yen strength, reflecting expectations of tighter BOJ policy amid wage-driven inflation. However, the correlation weakens during external shocks, such as the 2022 global supply disruptions. The recent slowdown in overtime pay growth aligns with a modest yen depreciation, underscoring the indicator’s relevance for currency traders.

Takeaway: Japan’s subdued overtime pay growth in November 2025 highlights persistent labor market softness, reinforcing the BOJ’s accommodative stance amid structural challenges and external uncertainties.