Japan’s household spending falls for third straight month as weak consumption plagues growth

Expenditures on households have been slow to improve due to the stagnant wage environment in the country as firms are reluctant to raise salaries.

Customers shopping for groceries in Japan Source: Bloomberg

Household spending in Japan fell for the third straight month in November, down by 0.6% on a year-on-year basis, a performance worse than the 0.1% drop economists had expected.

The fall in November worsened from the 0.3% fall in October, data from the Ministry of Internal Affairs and Communications showed, adding to uncertainties on the country’s flaccid economic growth performance.

Household spending for November was down in segments such as food, fuel, and medical care but was up for categories such as housing, and education.

Household spending in Japan is a key contributor to the private consumption cluster which accounts for more than half of Japan’s Gross Domestic Product.

Expenditures on households have been slow to improve due to the stagnant wage environment in the country as firms are reluctant to raise salaries. A pick up in consumption is important to drive the country’s 2.0% inflation target. When consumers tighten their purse strings, firms will be less encouraged to raise the price of goods due to the cost-sensitive environment.

Japan’s core consumer prices eased in November compared to the previous month, and were below economists’ expectations as lower oil prices helped reduced energy costs.

The conditions in Japan spell out a weak economic growth environment amid depressed wages, however, economists are hoping for the country to rebound in its performance for the last quarter of the year.

Japan’s economic growth for the third quarter shrank 0.6% from the previous quarter, lower than the preliminary forecast of a 0.3% decline and economists’ expectations of a 0.5% fall, due partly to a slew of natural disasters that beleaguered the nation from July to September.

The fears of a global slowdown and signs of United States Federal Reserve putting a brake on its round of interest rates hikes have led to investors turning to safe-haven currencies such as the Japanese yen. This could also lead to a rise in the currency, making its goods more expensive to export.

Japan’s bank lending up 2.4% in December

Separate data from the Bank of Japan showed bank lending in the country rising by 2.4% in December, at ¥534.55 trillion. The increase follows the 2.1% rise in November.

Excluding trusts, bank lending rose 2.5% to ¥465.23 trillion, up from a 2.2% rise in November.


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