Wages in Japan have suffered their sharpest drop since tracking began almost two decades ago, fuelling concerns that the economy will remain under pressure from depressed consumer spending.

The plunge comes as Japan prepares to vote at the end of the month in elections that could topple the long-serving Liberal Democratic Party, with both the incumbents and the rival Democratic Party of Japan, which is leading in the polls, wooing voters with promises of better conditions for workers.

Labour Ministry figures showed monthly wages, including overtime pay and bonuses, slid 7.1 per cent from a year earlier in June to Y430,620, the 13th consecutive decline but the biggest since the data series started in 1990.

The steep June decline stemmed in large part from deep cuts to bonuses as manufacturers in particular continued to suffer from weak demand. Bonuses, which are generally distributed in June and December, suffered a 14.5 per cent fall from a year ago.

“This kind of drop in bonuses would be unthinkable in normal times,” said Naoki Murakami, chief economist at Monex Securities.

Overtime hours worked continued to fall by double digits, with overtime in the manufacturing sector declining 40 per cent year-on-year. Overtime pay fell 17.7 percent in June from a year earlier.

“In coming months Japan’s unemployment rate is set to rise, with surveys showing the vast majority of firms feel their staffing levels are excessive,” said Nikhilesh Bhattacharyya, an associate economist with Moody’s Economy.com. “The jobs-to-applicant ratio was at a record low in June, while the unemployment rate was just short of a record high.”

For consumers, the drop in wages was somewhat offset by government stimulus measures. Mr Murakami said that incentives to buy fuel efficient vehicles and energy efficient electronic products have had a stronger impact on consumption than many economists had expected. Hybrid cars, for example, have enjoyed firm demand, helping to push vehicle sales back to levels of a year ago.

Combined with one-off government payments, the stimulus measures are likely to have had their strongest impact in the April-June quarter, Mr Murakami said. Overtime hours however rose 2.2 per cent in June from May, reflecting an improvement in industrial production.

Economists warned that the impact of stimulus measures is likely to taper off towards the end of the year, which could hurt consumption. The question is how much the US economy will recover by then and how much this will help Japanese exporters, Mr Murakami said.

The LDP’s policy manifesto pledges to create 2m jobs over the next 3 years and increase household after-tax income by Y1m within 10 years. The DPJ, meanwhile, is proposing an increase in the minimum wage to Y1,000 from about Y700 an hour.

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