Japan’s household cut spending once again as prices rise

JAPAN’S households cut spending for a second month as inflation continues to deter consumption, backing the case for the Bank of Japan (BOJ) to take a cautious approach to rate hikes.  

Outlays by households dropped 1.1 per cent from a year earlier in September, compared with the consensus estimate of a 1.8 per cent decrease, after sliding 1.9 per cent in the previous month, according to a report by the Ministry of Internal Affairs on Friday (Nov 8). Outlays have now risen only twice in the past 12 months.

Consumer spending has consistently failed to show clear signs of strength as households have been forced to cope with prices increasing at or above the BOJ’s inflation target for 30 months.

Prime Minister Shigeru Ishiba has said he will compile an economic package to help those suffering from higher costs of living as policymakers at the central bank bide their time until wage growth is robust enough to lift personal spending.

The yen’s weakness is a key factor weighing on the purchasing power of Japanese households. Consumer confidence slid for the first time in five months in October after Japan’s currency fell to the weakest level in almost three months. The currency resumed its slide after Donald Trump prevailed in the US presidential election this week.

If the yen extends its downward trajectory it could stoke discontent among consumers by spurring inflation due to higher import costs. That could also help bring the timing for the BOJ’s next rate hike forward to December, according to Kazuo Momma, a former BOJ executive director.

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Friday’s report will be a factor in calculations for Japan’s economic growth in the third quarter in data due for release next Friday. Economists see annualised growth slowing to 0.6 per cent quarter on quarter, according to the latest median estimate.

Consumer spending, which accounts for more than half the economy, has stayed below pre-pandemic levels.

Japan’s authorities are hopeful that a recent acceleration in wage growth will spur personal spending. Base salaries jumped by the most in 31 years in September, according to a government report on Thursday. BLOOMBERG