TOKYO : Japan’s consumer spending unexpectedly fell in March at the fastest rate in a year, while real wages marked a twelfth month of decline on persistent inflation, highlighting the challenges facing the economy in mounting a strong post-COVID revival.
Tuesday’s government data also reinforce the uncertainties around the Bank of Japan’s policy outlook amid slowing global growth and financial sector worries even as expectations build for a phasing out of its ultra-easy monetary settings.
“Rising prices, while somewhat moderated by the government’s energy subsidy programs, have put downward pressure on consumption by shaving households’ real purchasing power,” said Masato Koike, economist at Sompo Institute Plus.
Household spending fell 1.9 per cent in March from a year earlier, the data showed, against economists’ median forecast for a 0.4 per cent rise and following a 1.6 per cent gain in February.
It marked the biggest decline since March 2022’s 2.3 per cent, when Japan was still trying to curb the spread of coronavirus.
On a seasonally adjusted, month-on-month basis, spending decreased 0.8 per cent, versus an estimated 1.5 per cent increase and posting a second month of decline after being down 2.4 per cent in February.
For the full fiscal year 2022 that ended in March, household spending rose 0.7 per cent, slowing from 1.6 per cent expansion in fiscal 2021.
Separate data showed Japanese real wages falling 2.9 per cent in March, marking the full year of declines that started in April 2022 on decades-high consumer inflation.
Despite the boon from eased COVID-19 restrictions on domestic shoppers and international travellers, accelerating prices have put a lid on Japan’s consumption-led recovery from the pandemic.
Moreover, while large firms concluded three-decade-high wage hikes at their March labour talks, whether the trend spreads to smaller businesses is key to the outlook for monetary policy normalisation under the new BOJ Governor Kazuo Ueda.
Looking ahead, analysts say slowing price inflation will lead to a rebound in pay in real terms.
Japan’s economy likely expanded an annualised 1.4 per cent in January-March and is set continue growing at the same pace in April-June, economists in the latest Reuters poll showed last month.