With unemployment falling to levels not seen in six years, the average Japanese "salaryman" should be feeling more confident than he has been in a long time. But a closer look shows a recovery in employment conditions is rather sketchy, and with higher tax and pension payments lurking ahead economists say few will feel better enough to spend more this year. On Tuesday, the government said total cash earnings, including overtime payments and bonuses, fell 1.0 percent year-on-year in December to 601,216 yen ($5,803).
That deflated expectations for a drastic turnaround in Japanese incomes, stoked by an impressive 1.8 percent rise in November from the year-earlier period.
A fall in the latest unemployment rate to 4.4 percent, down from a peak of 5.5 percent last marked in January 2003, had also raised hopes that Japanese workers were past the worst.
"The general view has been that the recovery in corporate profits will improve and incomes will rise, but the December figures show there's a long way to go," said Satoshi Shinohara, economist at NLI Research Institute.
On the upside, the data also showed wage earners' average overtime pay, a barometer of income conditions, rose 2.8 percent - the 29th straight month of gains.
But the number of general employees fell 0.1 percent year-on-year while that of part-time workers rose 3.1 percent, continuing a trend showing firms cutting back on employees on full benefits and replacing them with part-time workers.
Although economists note the shift towards lower-cost labour is now less drastic than it was a year ago, they said the upbeat jobs data may be deceptive.
"It's positive in the sense that companies are loosening their rigid employment practices but it also means less income overall," said Yoshimasa Maruyama, senior economist at Mizuho Research Institute, pointing out that part-time workers tended to be given a raise less frequently than full hires.
A recovery in incomes is seen crucial since personal spending accounts for over half of economic activity. It is also seen key to overcoming deflation, which has troubled the economy for over five years.
Average spending by households of Japanese wage earners was down a real 3.8 percent in December from a year earlier. But it rose in calendar 2004 for the first time in seven years.
"Incomes should recover in reaction to the rise in corporate profits, but I don't see consumer spending taking over exports, production, or capital spending as the main source of growth," said Seiji Adachi, senior economist at Deutsche Securities.
Economists also said higher taxes and pension payments, in addition to the recent cut in benefits to married couples, would discourage consumption in the year ahead.