Tokyo, March 2025 – The Japanese economy is undergoing a profound transformation. With wage levels continuing to rise, the ING analysis team predicts that Japan's first-quarter GDP data may see the most significant upward revision in nearly three decades. This change not only signifies a short-term boost in economic momentum but may also mark the end of the country's more than three-decade-long deflationary cycle.
ING economists point out that wage growth has become the core engine driving economic recovery. Data shows that Japanese workers have seen wage increases exceeding 3% for the past six quarters, the longest sustained period since 1990. This trend covers multiple sectors, including manufacturing and services. In particular, wage increases in industries such as catering, retail, and tourism are significantly higher than the manufacturing average, reflecting the full launch of domestic demand-driven growth.
Unlike the past economic model that relied on export-led growth, this round of recovery is supported by domestic consumption. Retail sales data released by the Japanese Cabinet Office has shown positive month-on-month growth for several consecutive months; the consumer confidence index has also rebounded to its highest level since 2019, confirming a substantial improvement in residents' willingness to spend.
From a historical perspective, Japan has long been mired in deflation, with companies generally lowering wages to maintain cost competitiveness. Today, increased labor shortages, improved corporate profitability, and the achievement of inflation targets are jointly driving wage negotiations in a favorable direction, forming a virtuous cycle of "wage increases - enhanced consumption - improved corporate profits - reinvestment."
Robert Carnell, ING's chief economist for Japan, said: "This is no longer a short-lived rebound like in the past, but a structural shift. Service-led consumption growth is reshaping the composition logic of GDP, and statistical calibers need to be adjusted accordingly."
It is worth noting that Japan has maintained a historically low unemployment rate while achieving moderate inflation, demonstrating a rare combination of "low unemployment, stable inflation, and high wages," which is particularly prominent among developed economies. If this trend continues, Japan may become a model for major global economies in achieving endogenous growth.