Japan consumer spending rises in August as economy recovers

Japan consumer spending rises in August as economy recovers

In August, Japanese households increased spending compared to a year earlier, as the economy continued to recover from COVID 19 restrictions, but rising prices are clouding the outlook for further gains.

As a result of the data released on Friday, real wages fell for a fifth month, underscoring growing pressure on Japanese consumer spending, which accounts for more than half of the country's gross domestic product GDP Price hikes, and household sentiment may become thriftier in the coming months, said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

In August, household spending increased by 5.1 per cent from a year earlier, government data showed on Friday. The reading was lower than the median estimate for a 6.7 per cent gain and followed a 3.4 per cent rise in July.

Gains in August have been flattered by the comparison with August 2021 when the government ramped up state emergency restrictions to fight a resurgence of COVID cases, even though there are clear signs that activity is slowly picking up.

On a month-on-month basis, household spending fell by 1.7 per cent in August, bigger than a 1.4 per cent decline in July. There was a negative surprise as economists predicted 0.2 per cent monthly growth for August.

Analysts have downgraded their growth projections for the world's third-largest economy because of the fact that inflation is still hot and the yen's plunge to 24 year lows expected to cool consumer spending.

In October, retail price hikes by food and beverage companies are peaking, with over 6,7000 items seeing an average of 16 per cent higher prices, according to a monthly survey by market research firm Teikoku Databank.

Analysts believe that the Bank of Japan's preferred measure of consumer inflation will surpass 3 per cent in October.

Prime Minister Fumio Kishida has pledged to compile a new stimulus package by the end of October, which will likely include subsidy schemes for utility and gas bills backed by at least $100 billion of fiscal spending.

The government is going to relax strict border control restrictions on Monday in an effort to attract foreign tourists with the weak yen, offering hope for the battered services sector.

Japan's private consumption should keep growing, because of the subsiding coronavirus outbreak and government's support on travels, said Shinkin's Tsunoda.

The momentum of what could have been a consumption-led recovery is curtailed by inflation.