Yahoo Finance Japan’s Household Spending Falls, Clouding Growth Outlook
(Bloomberg) -- Japan’s household spending unexpectedly fell in May, raising the likelihood that consumption won’t be a key driver for the economy in the second quarter, and complicating the prospects for the central bank’s next interest rate hike.
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Real outlays, adjusted for inflation, declined 1.8% from a year ago, the ministry of internal affairs reported Friday. The result missed the consensus forecast of a 0.3% increase. Spending slipped 0.3% from April.
Components that drove the decline included outlays for food, which fell 3.1% year on year, utilities and household durable goods. Spending on education and cars increased.
“Consumption continues to be weak as real wages remain negative and consumers expect inflation to stay on,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “Some companies are finding it hard to pass on rising costs to consumers given the current state of consumption.”
The result may cast doubt on the Bank of Japan’s view that private consumption is on the mend after falling for four consecutive quarters. The boost expected to arise from strong wage gains this fiscal year has yet to materialize in the form of increased spending.
A final tally of annual pay negotiations showed labor unions won a 5.1% raise this year, the highest in more than three decades. Only a small portion of workers in Japan belongs to unions, and a broader pay gauge that includes non-unionized workers has shown much weaker gains, with wages lagging inflation for more than two years. Figures for May are due on Monday.
Consumer inflation has stayed at or above the BOJ’s 2% target for more than two years, weighing on consumer sentiment. While the mood among households has recovered from pandemic lows it remains below the 20-year average.
The yen’s slide is expected to spur further gains in prices for imported raw materials, energy and food, creating fresh headaches for consumers and many businesses.
Among measures to ease the cost-of-living crunch, the government has given a large number of households a one-off tax rebate in June, while promising to restart utility subsidies in August.
Taguchi noted that the measures may have only limited impact, saying, “the tax rebate and additional utility subsides can only provide a floor to consumption rather than a shot in the arm.”
One in three economists surveyed by Bloomberg expects the central bank to raise interest rates at the end of this month while also detailing its plans for reducing purchases of government bonds.
“I don’t think this gives the BOJ a greenlight for another rate hike,” Taguchi said.
(Updates with economist’s comments)
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