Japan’s household spending rose 1.8% in September but was below the expected 2.5%

Japan’s household spending surged for the fifth consecutive month, providing some support to an economy that weakened in the third quarter. However, sources noted that this increase was lower than anticipated.

The announcement followed the Ministry of Internal Affairs and Communications’ release of reports indicating that individuals in the country spent approximately 1.8% more on household items in September than they did the previous year. According to the reports, this was after adjusting for inflation, attributing the increase to entertainment and transportation.

However, sources pointed out that the number was lower than the 2.5% increase economists had predicted. This was because individuals spent less on education and housing, negatively affecting the overall numbers. 

Japan’s household spending increases below economists’ prediction 

Consumption makes up more than half of Japan’s gross domestic product (GDP). In the meantime, experts said that while spending had overall remained solid against an inflationary backdrop, it is still possible that a GDP report due on November 17 will show that the economy actually shrank over the past three months to September, snapping five quarters of consecutive growth.

Sources familiar with the situation, who wished to remain anonymous, pointed to a decline in exports and new housing initiatives amid regulatory changes as the reasons behind this economic downturn.

Monitoring consumption is crucial to determine whether households adjust to the rising cost of living. In the case of inflation, analysts conducted research. They discovered that inflation levels have been at or above the Bank of Japan’s target of 2% for over three years, with a key price index rising in September.

Regarding the increase in Japan’s household spending, the important question for the central bank and the country’s new Prime Minister, Sanae Takaichi, is whether consumer spending will continue to boost a healthy economic cycle. 

“We are observing improved consumption figures compared to last year because the results during this time were not good,” stated Takeshi Minami, chief economist at Norinchukin Research Institute. Minami acknowledged that families with working members fuel spending, reflecting the effects of bonuses and higher wages.

Concerning wage growth in Japan, sources noted that although nominal wages increased, real wages, which take inflation into account, dropped drastically through September of this year. This decrease suggests that families have less purchasing power, resulting in dissatisfaction among voters. 

Government support during this period is crucial to bolster the country’s economy. Therefore, Takaichi has introduced an economic package to help families cope with inflation. This package is expected to support electricity and gas bills throughout the winter, as well as regional grants to help offset increasing costs. 

Moreover, Takaichi’s ruling Liberal Democratic Party and other major parties have agreed to ease the tax imposed on gasoline by the end of this year. 

The yen remains weak against the dollar, sparking worries in Japan 

Takaichi considers measures to lower prices a key focus after voters demonstrated their unhappiness with the LDP in the recent national elections. This was because the voters felt the price relief efforts were inadequate. 

To address these concerns, the prime minister essentially ruled out cash handouts, which the LDP had proposed as a significant step before the July election.

Notably, Takaichi is known for her advocacy of monetary easing, which has led to market expectations that the Bank of Japan may not hurry to hike interest rates. 

In addition, she has not directly called on the central bank to shift its policies since taking office last month, yet the yen remains weak against the dollar, recently trading near an eight-month low.

This situation has sparked worries among individuals that, instead of a stronger demand, increased import charges from the weaker currency will drive inflation higher.

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