Japanese Households Cut Spending Even Before Omicron Hit
Japan Households Cut Spending Even Before Omicron Variant
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Japanese household spending fell in November for the first time in three months, a sign of unexpected fragility in consumption even before the omicron variant of the virus started to spread.
Spending declined 1.2% from the prior month, led by drops in outlays on housing, education and transportation, the ministry of internal affairs reported Friday. Overall expenditures were 1.3% below 2020’s level, compared with economists’ expectations for a 1.2% increase.
Separate reports showed Tokyo inflation rose 0.5% last month from a year ago, the highest level since February 2020. Wages were flat in November, showing how much work Prime Minister Fumio Kishida must do to stoke the pay hikes he’s called for as a centerpiece of his economic agenda.
Consumers showed less appetite for spending in November even as vaccination rates climbed and Covid cases became more rare during the second full month since emergency virus restrictions were lifted.
Some of the year-on-year decline may have been the result of lower spending on travel compared with 2020, when government discount campaigns to help hotels were still in effect, a ministry official said. Outlays on utilities and vegetables also dropped as more people ventured out at night, the official said.
Still, the spread of the omicron variant, which has pushed case numbers back to levels not seen since late summer, could further damp spending if it triggers another emergency declaration, though the odds of that are still low.
Tokyo raised its alert level one notch this week, but the governor said there are no plans at this point to ask the national government to introduce a quasi-emergency in the capital, where 641 cases were discovered Thursday, around 10 times more than a week earlier.
Analysts have been forecasting consumption helping the economy return to growth last quarter, with a stimulus package from the Kishida administration expected to add support this year.
Some economists were skeptical that the household spending report gave a full picture of actual activity in November, especially given other data from the month, including retail sales, that pointed in a positive direction.
“Given that the state of emergency was lifted, I had expected much better numbers” from Friday’s report, said economist Atsushi Takeda at Itochu Research Institute. “Things like clothing and shoes are selling well, so you can see people are going out more,” he said, adding that the decline in housing expenditures was probably more attributable to sampling issues than actual changes in behavior.
What Bloomberg Economics Says...
“An unexpected drop in Japan’s household spending in November from a year earlier points to downside risk for a rebound in the economy in the fourth quarter last year. Steep increases in prices of daily necessities and energy offset pent-up demand.”
--Yuki Masujima, economist
For the full report, click here.
Meanwhile, higher energy prices and import costs on the back of a weaker yen continue to push Japanese inflation higher. Tokyo energy costs, led by higher electricity bills, rose about 17% last month from 2020’s level, the biggest jump in more than 40 years, according to a ministry briefer.
At a policy meeting this month, the Bank of Japan will likely discuss the possibility of ditching of a long-held view that price risks are mainly on the downward side, according to people familiar with the matter.
Any shift in the risk assessment of prices won’t be a signal that the BOJ is moving toward policy normalization since inflation is still far from the bank’s 2% target in stark contrast with many of its global peers, the people said.
Japanese policy makers have repeatedly said that higher wages hold the key to whether the economy reaches a more sustainable path, where consumers tolerate higher prices, profits increase and growth quickens.
In a speech to Japan’s biggest business lobbies this week, the prime minister urged companies to boost worker pay to help the economy recover. Kishida has called on firms to raise wages by 3%.
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