Japan’s household spending extends growth but inflation risks loom

By Kantaro Komiya

TOKYO (Reuters) -Japan’s family spending grew for a second straight month in July regardless of a resurgence in COVID-19 circumstances, however inflationary pressures from the yen’s hunch to a 24-year-low have forged doubt over a revival in consumption.

From falling actual wages to shrinking service sector exercise, knowledge this week has proven non-public consumption stalling, undermining among the beneficial properties made in April-June.

“Rising costs with out wage progress could be an impediment to the non-public consumption restoration within the subsequent six months,” mentioned Takumi Tsunoda, senior economist at Shinkin Central Financial institution Analysis Institute.

Family spending rose 3.4% in July from a yr earlier, authorities knowledge confirmed on Tuesday.

The studying was decrease than economists’ median estimate for a 4.2% achieve and adopted 3.5% progress in June.

In contrast with a month earlier, spending decreased 1.4% in July, larger than the forecast 0.6% fall.

The month-on-month spending drop may very well be as a result of shoppers felt much less assured visiting retailers attributable to rising coronavirus circumstances, a authorities official informed reporters.

Japan noticed a speedy improve in COVID circumstances within the month and reported the world’s highest infections within the week of July 24.

However the authorities has not reinstated curbs and as a substitute hopes to reopen the delicate financial system that in April-June lastly regained pre-pandemic ranges, lagging international friends.

The double-digit growth in leisure objects boosted spending progress in contrast with July 2021 when restrictions on face-to-face providers saved shoppers at house, the official mentioned. Lodge bills grew 55% year-on-year, whereas transport charges had been up 48%, in response to the info.

The largest danger Japanese shoppers face is rising costs, analysts mentioned, as international commodity inflation and a weak yen jacked up the price of imported items. The yen fell past 140 per greenback for the primary time since 1998 final week.

If the yen stays at 140 per dollar for the following six months, Japanese households will likely be compelled to spend 1.3% greater than the earlier yr for meals, power and different important prices, in response to an estimate by Saisuke Sakai, senior economist at Mizuho Analysis and Applied sciences.

“Households are taking the hit of upper inflation with the yen’s additional decline, which inevitably drags down non-public consumption,” he mentioned, including the possibility of Japan’s core inflation hitting 3% within the remaining three months of this yr is heightening.

Shinkin’s Tsunoda mentioned the non-public consumption outlook was not all grim regardless of low wage progress, with Japanese households turning into much less delicate to COVID-19 outbreaks and embracing the financial reopening.

“Japan’s return to a pre-pandemic financial system has lagged the U.S. or Europe, so there’s nonetheless room to recuperate,” he mentioned.

(Reporting by Kantaro Komiya; Enhancing by Sam Holmes)