TOKYO: Japan's household spending fell faster than expected in April, as the yen's decline and rising commodity prices pushed up retail costs, causing consumer confidence and putting pressure on the battered economy.
Spending improved from the previous month, as households showed an increasing appetite for services such as eating out, but the month-on-month rise was smaller than expected, suggesting the drag from the pandemic remained.
In a sign of the trouble for the economy, real wages shrank at the fastest pace in four months in April, as prices posted their biggest jump in more than seven years, weighing on household purchasing power.
In April, household spending decreased by 1.7 per cent from a year earlier, the data showed, faster than the market forecast for a 0.8 per cent decline in a Reuters poll, dragged down by lower spending on cars and vegetables.
The month-on-month figures showed a 1.0 per cent increase, which is also weaker than a forecast 1.3 per cent rise.
Takeshi Minami, chief economist at the Norinchukin Research Institute, said that higher energy and food prices are having a big impact and are suppressing consumption. While the spending recovery is intact, its pace is slowing. The data raises concerns for policymakers who are worried about the growing hit households are taking from rising prices for daily essentials and a weakening yen, which is pushing up import costs and making consumers hesitant to spend.
As long as its moves were not extreme, households were becoming more accepting of price rises, according to Bank of Japan Governor Haruhiko Kuroda, who said on Monday that a weak yen would have a positive impact on the economy.
The yen hit a new two-decade low against the US dollar early on Tuesday, the last time it traded around 132.20 per dollar.
A government official downplayed the impact of price rises on the cutback on food spending, saying it had already been on a declining trend from the spring of last year, a reflection of shrinking demand for eating at home.
The outlook for consumer sentiment was extremely worrying, and should be watched, the official said.
Inflation-adjusted real wages fell to 1.2 per cent in April, dropping at the fastest pace in four months as a 3.0 per cent jump in consumer prices outpaced a gain in nominal wages, according to government data released on Tuesday.
The problem is structural. It feels like the situation where wages and prices are not rising in line with each other, can't be left behind, said Minami.
Japan's economy is expected to rebound in the current quarter after a contraction from January to March, although it faces increased pressures from high raw material and energy prices as well as the weak yen.