News Article

Japanese household spending rises, but wages fall

Household spending in Japan rose for the ninth month in a row in August, giving Japan’s export-dependent economy some relief in the face of sluggish global demand and the protracted war of trade between the United States and China.

Nevertheless, separate data on Tuesday revealed that incomes had fallen for the eighth consecutive month, leading to more pressures on households in anticipation of the sales tax increase on Oct. 1.

Mixed readings will force policymakers to implement further fiscal and monetary stimulus measures to protect the economy from the crisis, analysts say.

Household spending increased 1.0% compared to a year before in August, accelerating by 0.8% in July but fell short of a median market forecast for 1.2%, government data showed.

The ninth straight month of earnings has been the longest since officers started to accumulate comparable data in 2001.

“In August, consumption seemed to be fairly strong after weak spending in July when bad weather kept consumers at home,” said Yoshiki Shinke, Dai-ichi Life Research Institute’s chief economist.

“But the view isn’t clear,” he said. “Wage growth is weak, and the impact of the tax rise in October will begin to show. Consumer sentiment was rather negative, which means uncertainties are tipped to the edge. “The jump in consumption tax, from 8% to 10%, was viewed as crucial for restoring the tattered finances of the country even though it was postponed two years before that.

While the government has taken action to reduce the burden on households by providing subsidies and tax breaks, there are concerns that the higher rate could weaken an economy that is already feeling the pinch of global pressure.

Effective inflation-adjusted incomes declined for the eighth straight month in August, boosting private investment fears.

The unemployment rate is still record low, but employment is declining in the indication that the effects of trade wars are rising.

First statistics may be hard to read because consumers can buy before the rise in consumption tax, which can inflate spending figures before September and lead to a drop in expenditure, analysts say.

The level of demand and spending of resources will be crucial to the decision of the Bank of Japan whether to ease monetary policy in its rate review on 30 and 31 October.

The central bank says that while strong domestic demand compensates for the export decline, it is ready to act if the uncertainties are rising enough to disrupt the recovery of Japan.

Any sign that job growth spikes is also bad for the government of Prime Minister Shinzo Abe, which has flagged an active job market as one of its major policy achievements.

Friday, Abe pledges to take “all possible steps” when the economic risks have increased, indicating his willingness to boost fiscal spending, if the growth in consumer taxes triggers a sharp decline in growth.

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