Japan household spending dropped on its second straight month in November, indicating a higher sales tax weighing down on private consumption for a while.
Japan has been working to regain momentum after the drop in household spending which followed the October sales tax hike. Japan exports were hit by weak global demands in the past year and the weak household consumption has contributed to the chances of a stalling economic growth.
In November 2019, household spending slid 2%, according to government data. The figure was lower than the analyst forecast of 1.7% fall.
The biggest decline happened in October when consumer spending dropped 5.1% after March 2016 fall of 5.3%.
“The pace of a pick-up in household spending in November after a huge drop in October is weak. It is unclear if the spending will recover steadily in coming months given the tax burden and tepid wage recovery,” said chief economist at Dai-ichi Life Research Institute Yoshiki Shinke.
“Not only consumer-related data, but also other data, especially factory output, are weak. The focus will be how much the economy shrank in the fourth quarter and how much it will recover in the current quarter.”
A recovery from low consumer spending is needed to lift the economy and achieve the Bank of Japan’s elusive price target.
Despite some companies raising costs to households, many are reluctant due to fear of losing customers on the higher prices.
Japan increased the sales tax from 8% to 10% on Oct. 1. The measure was viewed to be vital to fix the country’s tattered finances.
However, recent data on factory output and exports, including the effect of the tax hike, show that Japan’s economy could reduce in the fourth quarter following the growth of an upwardly revised annualized 1.8% in the period of July-September.
Low consumer spending also means ill news for Japan’s still recovering economy. A few analysts anticipate household consumption to further contract.
Slow wage recovery is contributing to concerns on private spending, as inflation-adjusted real wages decrease at the fastest pace in four months in November.
A survey conducted by the central bank showed Japanese consumers’ sinking confidence in the economy for the fifth year last year.
Japan set up a $122 billion fiscal package last month to assist the stalling growth as policymakers look into sustaining activity after the 2020 Tokyo Olympics.