Japan October household spending falls at fastest pace in nearly two years

[TOKYO] Japanese household spending unexpectedly slumped at the fastest pace in nearly two years in October, government data showed on Friday (Dec 5), raising concerns about the economic outlook as the Bank of Japan (BOJ) gears up for a rate hike as early as this month.

Consumer spending fell 3 per cent in October from a year earlier, internal affairs ministry data showed, the first decrease in six months and falling at the steepest pace since January 2024. It was worse than the median market forecast for a 1 per cent rise.

On a seasonally adjusted, month-on-month basis, spending dropped 3.5 per cent, versus an estimated 0.7 per cent uptick, the data showed.

An internal affairs ministry official said the overall decrease was due to lower spending on food, entertainment and automobile-related expenses. However, the official added it was unclear whether the decrease was one-off and the overall consumption was still at a recovery stage.

The indicator will be among the factors the BOJ will scrutinise in deciding whether to raise interest rates in December or hold off until next year.

While it has kept rates steady since the last hike in January to gauge the economic impact of US tariffs, stubbornly high inflation and a weakening yen have shifted opinion in the BOJ board to increasingly favour a hike.

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“A rate hike in December is almost a foregone conclusion, but weak consumption will likely weigh negatively on any subsequent hikes,” said Masato Koike, senior economist at Sompo Institute Plus.

“If the market perceives that continuing to raise rates will be difficult, the yen could well depreciate further after the hike,” he said.

Reuters reported on Thursday that the BOJ is likely to raise interest rates in December, with the government expected to tolerate such a decision. REUTERS