Japanese Household Spending Stagnates as Inflation Bites
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Japanese household spending showed signs of improvement in November, though the broader consumption trend remains soft, Reuters reports, citing government data released Friday.
The trend is attributed to persistent inflationary pressures. Consumer spending decreased by 0.4% year-on-year, slightly better than the anticipated 0.6% decline. However, on a seasonally adjusted month-on-month basis, spending increased by 0.4%, exceeding expectations of a 0.9% drop.
"The negative margin is shrinking, but consumption is at a standstill," an internal affairs ministry official told Reuters. He highlighted that price-conscious consumers are opting for less expensive alternatives. Consumers reduced spending on food, clothing, and entertainment, while expenditures in education and housing increased. Warmer weather also discouraged the purchase of seasonal apparel and air conditioners.
Despite anticipated wage increases during upcoming pay negotiations, analysts express concern that inflation could hinder the recovery in real wages and personal consumption.
"This year's pay negotiations are believed to result in a certain degree of wage increases, but the soaring prices of food and the depreciation of the yen have meant that other items have also remained higher than initially expected," said Masato Koike, senior economist at Sompo Institute Plus, to Reuters.
The Bank of Japan (BOJ) is closely monitoring consumption and wage trends to assess economic strength and determine the appropriate timing for interest rate hikes. November's pay data revealed that inflation-adjusted wages declined for the fourth consecutive month, indicating that higher prices are offsetting wage gains.
"It's difficult to imagine a scenario where real wages and personal consumption will grow," Koike added, suggesting a low likelihood of a rate hike at the upcoming BOJ policy meeting (January 23-24).
The BOJ ended its extensive monetary stimulus and raised interest rates to 0.25% last year. While some investors anticipate another rate increase this month, others believe a March hike is more probable.