Japanese household spending falls for second straight month in September

Japanese household spending: Japanese household spending fell for the second consecutive month in September, as rising prices dampened consumer demand, government data revealed on Friday. This decline poses a challenge to the central bank's plans for further interest rate hikes.

Consumer spending dropped by 1.1 per cent year-on-year, better than the median forecast of a 2.1 per cent decline. On a seasonally adjusted, month-on-month basis, it fell 1.3 per cent, exceeding an estimated 0.7 per cent drop.

High cost of living, increasing savings

“There are brief increases in consumption, but they don’t last,” commented Takeshi Minami, chief economist at Norinchukin Research Institute. “This is largely due to the high cost of living and a persistent inclination to save.”

Households have reportedly reduced spending on food, opting for more affordable items such as chicken over beef, while saving a larger share of their income, an official from the Ministry of Internal Affairs noted. The average consumer spending for July-September was down 1.0 per cent compared to the same period last year.

Wages declined 

The Bank of Japan (BOJ) is closely monitoring consumer spending and wage trends to assess the health of Japan’s economy and determine the timing for future rate hikes. Data released on Thursday showed that inflation-adjusted wages declined for the second month in a row, despite nominal salary growth and easing consumer inflation.

Adding to the challenges, the yen has weakened following Donald Trump’s US election victory, which could further strain household spending due to higher import costs. However, a sharper decline in the yen could increase pressure on the BOJ to raise interest rates.

Japan’s preliminary GDP data for July-September, scheduled for release next Friday, is expected to show a sharp slowdown, with forecasts suggesting weaker consumption and capital spending.

(With Reuters inputs)