By Noriyuki Suzuki,
Japan's wage growth has slowed to levels last seen in the aftermath of the 2008 financial crisis as companies have taken a hit from the coronavirus pandemic.
Major companies have agreed on an average pay hike of 1.82 percent in this year's annual spring wage negotiations, falling below 2 percent for the time since 2013, according to data released by the Japan Business Federation. The final results are due out in July.
Tepid wage growth is seen as a drag on consumption, which makes up the bulk of the economy. This time, economists are keeping an eye on the role that "forced savings," or money that households have been forced to save due to pandemic-caused restrictions, will play.
"Wage growth is seen falling below 2 percent and this will add downward pressure on consumption," said Naoko Ogata, senior economist at Japan Research Institute.
"Under normal times, people tend to cut back on spending as income falls," Ogata said. "What's different this time is that they have money at their disposal, but they can't spend it amid the pandemic."
She estimates that the pandemic has forced Japanese households to save about 13 trillion yen ($118 billion), or roughly 4 percent of Japan's annual consumption.
Such savings increased as people canceled vacation plans or leisure activities due to the COVID-19 crisis.
The Bank of Japan, which counts on a virtuous cycle of wage growth spurring private consumption, puts such forced savings at 20 trillion yen last year.
Some of the disposable income that could have been spent on leisure or other activities had it not been for the pandemic was apparently spent on other items like durable goods.
As people spend more time at home, sales of durable goods have been robust, lifting shipments of white goods in fiscal 2020 to 2.61 trillion yen, its highest in a quarter of a century, according to data by the Japan Electrical Manufacturers' Association.
Still, economists say uncertainty over the outlook has largely kept many households frugal.
The pandemic has boosted the use of e-commerce and "group buying," or purchasing items at a discount with multiple people on social media.
Beer topped the list of best-selling items in 2020, and a total of 190 people formed a group to buy sweet roasted chestnuts at around a 70 percent discount, according to the operator of the Kauche app.
With a third state of emergency in place over COVID-19, Japan's economy faces the risk of falling into a technical recession, two straight quarters of negative growth, in the April-June period.
Much depends on how fast the rollout of vaccines will proceed in Japan, which would unleash what economists call "pent-up" demand.
As "COVID-19 subsides, households may withdraw some of their 'forced savings,' and this may push up private consumption," the BOJ said in its outlook report.
Ogata said the near-term impact of pent-up demand may be larger than that of slowing wage growth.
"Demand from people who think 'I want to do this when the COVID situation subsides' is strong," she said.
