Sales tax, warm winter dent Japan's household spending in Dec

Tokyo

JAPANESE household spending fell at a much-faster pace than expected in December 2019, sliding for the third straight month in a sign consumers are having a hard time coping with a sales tax hike.

The world's third-largest economy is struggling to regain momentum after last October's sales tax hike led consumers to curb spending.

China's novel coronavirus epidemic also poses a new threat to the global growth outlook and Japan's output and exports.

Household spending slipped 4.8 per cent in December from a year earlier, government data showed on Friday, coming in well below a median forecast for a 1.7 per cent decline.

Following the tax hike to 10 per cent from 8 per cent, the first such rise in four-and-a-half years, it tumbled 5.1 per cent in October, the fastest pace of decline since March 2016, and dropped 2 per cent in November.

"The warm winter is having a large impact as seasonal goods aren't being sold," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"But consumer confidence is falling and taken together with the virus outbreak one can't have high hopes of consumption for January-March," the economist added.

A government official also said the mild weather negatively impacted the sales of many goods in December, such as winter vegetables, while purchases of stoves and heaters also suffered from a post-tax hike pullback in spending.

Lower spending on eating out and entertainment also weighed, the official added.

Japanese policymakers are hoping for a recovery in domestic demand largely fuelled by resilience in consumer spending to help soften the blow to businesses' profits from a delayed pick-up in global growth.

Stronger consumer spending is also needed to help achieve the Bank of Japan's (BOJ) elusive 2 per cent price target.

Sluggish wage recovery is leading to further worries about private spending, with inflation-adjusted real wages falling 0.9 per cent to also drop for a third month in December.

For the whole of 2019, real wages also lost 0.9 per cent, reversing a 0.2 per cent gain in 2018, the data showed.

While Friday's reading excludes the impact on spending from the virus outbreak originating in China, analysts expect it will hurt consumption in the coming months as tourism takes a hit.

Japanese Prime Minister Shinzo Abe has ordered his government to take "all necessary steps" to mitigate the impact of the coronavirus outbreak on the economy, including tapping state budget reserves, Economy Minister Yasutoshi Nishimura said on Friday.

"There's a risk the coronavirus outbreak could hurt consumption, so we need to watch developments carefully," he explained, adding the impact on inbound tourism is also a concern.

Japan's economy is expected to have shrunk in the fourth quarter last year due to the fallout from the sales tax hike and a powerful typhoon, after it had expanded an upwardly revised annualised 1.8 per cent in the July-September 2019 period.

A preliminary US-China trade deal had raised hopes globally of a let-up in the pressure facing businesses worldwide, in particular export-reliant nations like Japan.

But uncertainty on how the spread of the coronavirus could affect China - a major engine of global growth - has now cast doubt on the BOJ's optimistic economic projection.

The central bank expects the economy to recover this year, holding onto hope that global growth will rebound around mid-year and provide a lift to exports. REUTERS