Economic Indicators

Japan household spending logs biggest drop in 35 months in January

Store owner Hiromichi Akiba works at his supermarket ‘Akidai’ in Tokyo, Japan, February 16, 2024. REUTERS/Tim Kelly

By Satoshi Sugiyama

TOKYO (Reuters) -Japanese consumer spending in January fell by the most in 35 months, data showed on Friday, although a government official blamed one-off factors and played down the impact on broader consumption trends.

Household spending in January decreased by 6.3% from a year earlier and was down for the 11th straight month, the internal affairs ministry data showed. That was worse than the median market forecast for a 4.3% decline and marked the biggest drop since February 2021.

On a seasonally adjusted, month-on-month basis, spending fell 2.1%, versus an estimated 0.4% increase.

The fall was due to decreases in new car purchases amid factory suspensions, lower energy bills due to warm weather and the backdrop of higher spending in the same month last year from post-pandemic travel subsidies, the interior affairs ministry official said.

The numbers came amid growing market expectations that the Bank of Japan could exit negative interest rates as early as this month, despite some pockets of weakness in economy.

Although inflation put downward pressure on food and travel spending, it did not contribute to the further drop in January household spending from the previous month, the official added.

Some economists are hopeful that consumer spending will gradually recover.

“The downward pressure on consumption will ease in the future, with the extent of drop in real wages gradually narrowing as price inflation settles down and wage increases continue,” said Masato Koike, an economist at Sompo Institute Plus.

Separate data released on Thursday showed Japanese real wages in January shrank for the 22nd month in a row, but at the slowest pace in more than a year on weakening price pressures.

Japan’s economy stumbled into a recession in the October-December quarter last year on weak domestic demand, preliminary estimates showed.

Economists, however, forecast gross domestic product figures to swing to growth in revised readings that will be announced on Monday, thanks to solid capital expenditure.

Investors are also closely watching this year’s annual springtime wage negotiations, which could deliver more hefty pay hikes.

Rising wages are a prerequisite for BOJ to ditch negative interest rates and dismantle its ultra-loose monetary policy settings.


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