Japan household spending drops fastest in 8 years

[TOKYO] Japanese household spending in 2014 declined at its fastest pace in eight years, official data showed on Tuesday, underscoring the impact of the country's first sales tax hike in nearly two decades.

The figures come a day after the government said Japan's economy limped out of recession in the last quarter of 2014, with a weaker-than-expected 0.6 per cent expansion between October and December.

But the world's number three economy posted zero growth over the full year, partly due to weak private spending which accounts for about 60 per cent of Japan's gross domestic product.

Last year, the average household spent 251,481 yen (S$2,865) each month, down 3.2 per cent from the previous year and marking the first year-over-year decline since Japan's quake-tsunami accident in 2011.

The drop - the biggest percentage fall since 2006 - came "partly in response (to a sales tax hike) and the impact of bad weather in summer," the internal affairs ministry said.

In April, Tokyo raised sales taxes for the first time in 17 years as part of wider efforts to tame a massive national debt.

But hiking the levy to 8.0 per cent from 5.0 per cent slammed the brakes on consumer spending and helped to briefly push Japan into recession.

Analysts say wage hikes will be key to sustaining a recovery, a point echoed by Prime Minister Shinzo Abe's government, which has repeatedly called on Japanese companies to raise workers' pay so as to boost spending.

AFP