By Leika Kihara
TOKYO- Japan’s consumer sentiment deteriorated in December, a government survey showed on Wednesday, casting doubt on the central bank’s view that solid household spending will underpin the economy and justify a rise in interest rates.
The results precede the Bank of Japan’s policy meeting on Jan. 23-24, when some analysts anticipate a potential interest rate increase from the current 0.25 percent.
An index measuring consumer sentiment fell to 36.2 in December, a 0.2 point drop from the previous month, according to the survey by the Cabinet Office.
Separate data showed Japan’s output gap, which measures the difference between an economy’s actual and potential output, stayed negative in July-September for the 18th straight quarter.
A negative output gap means actual output is running below the economy’s full capacity, and is considered a sign of soft demand.
These findings underscore the vulnerability of Japan’s economy as rising living costs and uncertainty over US President-elect Donald Trump’s policies weigh on consumption and exports.
Nevertheless, some big firms have signaled their resolve to continue offering significant wage increases.
Fast Retailing owner of clothing brand Uniqlo, said it would raise wages for full-time headquarters and sales staff by as much as 11 percent from March.
“We’d like to raise (wages) stably and sustainably,” Sadanobu Takemasu, president of convenience store Lawson told reporters on Tuesday.
The BOJ exited a massive stimulus program in March and raised short-term rates to 0.25 percent in July on the view Japan was on the cusp of sustainably achieving its 2 percent inflation target.
BOJ Governor Kazuo Ueda has signaled a readiness to keep raising rates if Japan continues to make progress toward durably hitting 2 percent inflation.
He has also said the central bank will scrutinize data on whether wage momentum will strengthen this year, in deciding how soon to raise interest rates.
The BOJ currently describes consumption as “increasing moderately as a trend,” and projects Japan’s economy will remain on track for a modest recovery.
Meanwhile, former governor Haruhiko Kuroda said BOJ will likely keep raising interest rates in the coming years as inflation appears on track to sustainably hit its 2 percent target.
Despite the expected rate hikes, Japan’s economy will achieve growth exceeding 1 percent this year and beyond as rising real wages underpin consumption, Kuroda said in a research paper submitted to the House of Representatives’ annual journal issued on Dec. 24. — Reuters
