Japanese household spending up at end of Q3 down
(Bloomberg) – Japanese household spending rose for the first time in three months in September, showing some recovery despite growing concerns about inflation weighing on household purchasing power.
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Household spending rose 1.8% from August, led by furniture, household items and clothing, the Home Office reported on Tuesday. Year-over-year spending levels were weaker than expected, up 2.3% versus 2.6% forecast by analysts. Spending was also down 1.6% for the quarter compared to the previous three months.
A separate data report showed wages maintained an upward year-on-year trend, climbing 2.1% in September, although they continued to fall when adjusting for inflation .
The monthly rise in real consumption raises hopes that Japan’s post-pandemic recovery will have some resilience, even in the face of accelerating inflation. Retail sales rose 1.1% in September from August, indicating continued buying appetite. Industrial production in the third quarter also rose 5.9%, reflecting the strength of manufacturers, although households spent less in those three months.
“I heard that people tend to refrain from travel from July to August as the number of coronavirus infections increases,” said Shuji Tonouchi, senior economist at Mitsubishi UFJ Morgan Stanley. “In September, fewer people abstaining from travel and back-to-back vacations boosted demand.”
After hitting a record high of more than 200,000 new Covid-19 cases per day in August, the number of cases fell rapidly in September, falling to less than a tenth of the peak in early October.
Japan’s easing of border restrictions last month could also continue to boost spending in the country. Prime Minister Fumio Kishida is reportedly targeting 5 trillion yen ($33.8 billion) in annual spending by foreign visitors, taking advantage of the weak yen.
What Bloomberg Economics says…
“Solid household spending in September likely helped support Japan’s recovery in the third quarter, but that’s not likely to last. High frequency data suggests that inflation above 3% has started to reduce spending in real terms.
— Yuki Masujima, Economist
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But the acceleration of inflation remains worrying because it could dampen consumption. Nationwide inflation hit 3% for the first time in more than three decades in September, excluding the impact of tax hikes. In October, Tokyo’s core consumer price hit its fastest pace since the late 1980s.
To mitigate the impact of inflation and boost growth, Kishida ordered a supplementary budget worth 29.1 trillion yen which is expected to be approved by the cabinet on Tuesday. The plan includes assistance to reduce energy costs which will reduce headline inflation by more than 1.2 percentage points, according to the government’s estimate.
The recent rapid inflation and the historic fall of the yen did not deter the Bank of Japan from its ultra-accommodative policy. Governor Haruhiko Kuroda stressed that the current cost-driven inflation is not sustainable without strong wage growth and stressed the importance of keeping interest rates low to continue supporting the economy.
“Purchase volume data indicates that households are spending significantly less on items that have increased in price,” said Mitsubishi UFJ’s Tonouchi. “Although grocery spending has increased year over year, we feel that more and more households are taking the position of not buying items that have increased in price.”
(Adds more details from the report, comments from economists)
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