Japan's households tighten wallets as coronavirus empties streets

By Daniel Leussink

TOKYO (Reuters) - Japanese homes extended their frugal spell for a fourth straight month in January as an earlier sales tax hike and a warmer winter kept wallets shut, adding to headaches for firms as they struggle with the growing hit to business from the coronavirus.

The world's third-largest economy is trying to cushion the blow to output and exports from the global health crisis, which threatens to tip it into its first recession in nearly five years.

Household spending fell 3.9% in January from a year earlier, government data showed on Friday, largely in line with a median forecast for a 4.0% decline.

That marked the longest stretch of contraction since a five-month run to June 2018, a government official said.

The gloomy data suggests households were tightening their purse strings even before the coronavirus forced many retail outlets to close their doors in February and March as shoppers stayed at home.

"The reduction in going outside is likely to have a big impact, especially on spending related to services," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

The coronavirus crisis now threatens to spoil chances of the domestic-led recovery many policymakers had hoped for after the economy shrank at its fastest pace in nearly six years in the past quarter.

In central Tokyo's exclusive Aoyama district, some of the fashion and hairdressing shops are already seeing strains from the virus outbreak.

Clothing store manager Sayaka Nishi said her shop selling cotton dresses hand-woven in India is seeing noticeably fewer patrons, while foreign shoppers have fallen by as much as 90%.

"Customers aren't buying clothes that they would want to wear right now. My worry is about unsold items, such as spring coats," she said.

Florist Toshiyuki Fukano has seen sales drop by as much as a fifth from before the outbreak, partly due to order cancellations for concerts and weddings.

"The street has gotten really quiet," he said.

LOWER TRAVEL SPENDING

Household consumption had already been under pressure in recent months, after the government in October pushed ahead with the country's first sales tax rise since April 2014.

Spending in January fell 1.6% from the previous month, pulled down by lower spending on gasoline and overseas and domestic travel amid mild winter weather, a government official said.

Some people expect Japan's economy to get a boost from pent-up demand after the virus impact fades later in the year.

"Many people have stopped eating and drinking out altogether," said Daisaku Nagayoshi, whose firm produces marketing goods. He expects a burst of activity with people flocking to restaurants again once the virus threat clears.

The Bank of Japan may take steps this month to ensure companies hit by the virus do not face a financial squeeze before the March end of the current fiscal year, sources familiar with the central bank's thinking said on Thursday.

BOJ Governor Haruhiko Kuroda said earlier this week the virus could inflict serious damage on the economy, indicating a growing concern among BOJ policymakers over the deepening cost of the crisis.

Inflation-adjusted real wages provided a bright spot, gaining 0.7% in January to see the first rise in four months, labour ministry data showed on Friday.

Japan's economy shrank an annualised 6.3% in the October-December period as the sales tax hike hit consumer and business spending. The Cabinet Office will publish revised GDP data on March 9 at 8:50 a.m. Japan time (2350 GMT, March 8).

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

But uncertainty over how the spread of the virus could affect global and Chinese economic growth has now cast a shadow on the BOJ's rosy economic projections.

(Reporting by Daniel Leussink; Editing by Sam Holmes)