Japan’s household spending drops for first time in three months
[TOKYO] Japan’s households cut back on spending as inflation remained elevated, in a sign of vulnerability in a key pocket of the economy before sweeping US tariffs hit the country.
Household outlays adjusted for inflation declined 0.5 per cent in February from a year earlier, the ministry of internal affairs reported on Friday. The result compared with the median economist estimate of a 0.8 per cent decline. The drop was led by falling outlays on clothes and footwear, housing and food.
Consumer spending, accounting for more than a half of the economy, is a key component of gross domestic product that’s monitored closely by Bank of Japan Governor Kazuo Ueda as he mulls the bank’s policy path.
Inflation has stayed at or above the BOJ’s price target for almost three years, sapping spending power, and the latest tariffs from the US are now expected to weaken the economy further.
The data come after US President Donald Trump announced across-the-board 24 per cent levies on imports from Japan, which may face a double blow from the measures. The duties will have an immediate impact on the nation’s exports.
There’s also the likely effect on the US economy that could further undermine demand for Japanese goods. Economists say the US will probably see growth slow to an anemic pace even as inflation stays high.
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Policymakers are watching closely to see if the tariffs trigger a severe downturn in Japan, with some predicting a hit of more than 0.5 percentage point to growth. New 25% car tariffs also took effect Thursday.
Until now, data were relatively robust. Japan’s overall price growth slowed less than expected to 3.7 per cent in February, driven by food inflation. The price of rice rose 81 per cent from a year earlier, drawing attention from lawmakers concerned about rising household frustration over the cost of living crunch.
Base pay for workers increased 3.1 per cent in January, the fastest pace in 32 years although real income dropped.
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Prime Minister Shigeru Ishiba’s government managed to pass the national budget for this year earlier this week, just before the new fiscal year started.
In doing so, the premier pledged to mitigate the impact from inflation on households. Partly due to elevated costs of living, Ishiba’s popularity has sagged. The premier will face a key test in national elections likely to be held in July.
Consumer spending, adjusted for inflation, stayed below pre-pandemic levels last year in Japan’s GDP data. Economists expect overall annualised economic growth to be contained at 0.4 per cent this quarter, partly due to lackluster spending momentum, according to a Bloomberg survey last month. BLOOMBERG
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