Japan’s spending slump and low wages are adding to the pressure on the economy

TOKYO, May 9 (Reuters) – Japan’s consumer spending unexpectedly fell at the fastest rate in a year in March, while real wages marked the twelfth straight month of declines in inflation, highlighting the challenges the economy faces in mounting a strong post-Covid recovery. .

Government data on Tuesday reinforced uncertainty surrounding the Bank of Japan’s policy outlook, with global growth and financial sector concerns building expectations for a gradual exit from its ultra-easy monetary system.

„Inflation, partially restrained by the government’s energy subsidy programs, has put downward pressure on consumption by reducing the real purchasing power of households,” said Masato Koike, economist at Sombo Institute Plus.

The data showed home spending fell 1.9% in March from a year earlier, against economists’ average forecast for a 0.4% rise and followed a 1.6% gain in February.

It marked the biggest decline since March 2022’s 2.3%, when Japan was still trying to contain the spread of the coronavirus.

On a seasonally adjusted, month-over-month basis, spending fell 0.8%, posting a second monthly decline after a 1.5% increase and a 2.4% decline in February.

Household spending rose 0.7% in the full fiscal year 2022, which ended in March, down from a 1.6% expansion in fiscal 2021.

Separate data showed Japanese real wages fell 2.9% in March, marking a full year of declines that began in April 2022 at the highest consumer inflation in decades.

Despite the boon of easing COVID-19 restrictions for domestic shoppers and international travelers, the rapid price hikes have put a lid on Japan’s consumption-led recovery from the pandemic.

And while big companies ended three decades of high wage hikes in labor talks in March, whether the trend spreads to small businesses will be key to the outlook for monetary policy normalization under new BOJ Governor Kazuo Ueda.

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Looking ahead, analysts say a slowdown in price inflation should lead to a recovery in wages in real terms.

Japan’s economy expanded an annualized 1.4% in January-March and will continue to grow at the same pace in April-June, economists in a recent Reuters poll said last month.

Reporting by Kantaro Komiya Editing by Sri Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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