TOKYO – Japan’s consumer spending unexpectedly fell in March at the fastest rate in a year, while real wages marked a twelfth month of decline on persistent inflation, highlighting the challenges facing the economy in mounting a strong post-COVID revival.
Tuesday’s government data also reinforce the uncertainties around the Bank of Japan’s policy outlook amid slowing global growth and financial sector worries even as expectations build for a phasing out of its ultra-easy monetary settings.
“Rising prices, while somewhat moderated by the government’s energy subsidy programs, have put downward pressure on consumption by shaving households’ real purchasing power,” said Masato Koike, economist at Sompo Institute Plus.
Household spending fell 1.9 percent in March from a year earlier, the data showed, against economists’ median forecast for a 0.4 percent rise and following a 1.6 percent gain in February.
It marked the biggest decline since March 2022’s 2.3 percent, when Japan was still trying to curb the spread of coronavirus.
On a seasonally adjusted, month-on-month basis, spending decreased 0.8 percent, versus an estimated 1.5 percent increase and posting a second month of decline after being down 2.4 percent in February.
For the full fiscal year 2022 that ended in March, household spending rose 0.7 percent, slowing from 1.6 percent expansion in fiscal 2021.
Separate data showed Japanese real wages falling 2.9 percent in March, marking the full year of declines that started in April 2022 on decades-high consumer inflation.
Large firms concluded three-decade-high wage hikes at their March labor talks, and whether the trend spreads to smaller businesses is key to the outlook for the Bank of Japan’s monetary policy normalization under the new governor Kazuo Ueda.
Inflation-adjusted real wages, a barometer of households’ purchasing power, decreased by 2.9 percent in March from a year earlier, following the same pace of decline in February.
Total cash earnings, or nominal wages, grew 0.8 percent year-on-year in March, also following the same rate of growth in February.
Yet the nominal pay growth fell short of the 3.8 percent consumer inflation rate used to calculate real wages, which includes fresh food but excludes owners’ equivalent rent.
Overtime pay, a gauge of business activity, rose 1.1 percent in March from a year earlier, after a revised 1.2 percent growth in the previous month.
Special payments advanced 4.6 percent in March, faster than a revised 2.2 percent gain in the previous month. The indicator tends to be volatile in months outside the twice-a-year bonus seasons of November to January and June to August.
The table below shows preliminary data for monthly incomes and number of workers in March:
The labor ministry defines “workers” as 1) those employed for more than one month at a company that employed more than five people, or 2) those employed on a daily basis or had less than a one-month contract but had worked more than 18 days during the two months before the survey was conducted, at a company that employs more than five people.
Despite the boon from eased COVID-19 restrictions on domestic shoppers and international travellers, accelerating prices have put a lid on Japan’s consumption-led recovery from the pandemic.
Moreover, while large firms concluded three-decade-high wage hikes at their March labor talks, whether the trend spreads to smaller businesses is key to the outlook for monetary policy normalization under the new BOJ Governor Kazuo Ueda.
Looking ahead, analysts say slowing price inflation will lead to a rebound in pay in real terms.
Japan’s economy likely expanded an annualized 1.4 percent in January-March and is set continue growing at the same pace in April-June, economists in the latest Reuters poll showed last month.
Japan’s economy narrowly averted a recession in the final months of 2022, barely growing on frail consumption after shrinking in the third quarter, revised data showed, underscoring the challenge for policymakers trying to shore up a wobbly recovery. Reuters
