By Daniel Leussink
TOKYO (Reuters) -Japan’s household spending posted an annual decline for the fifth straight month in December, as consumer demand stayed sluggish and policymakers now grapple with a fresh surge in coronavirus infections.
The extended spending decline casts a cloud over the broader recovery prospects of the world’s third-largest economy, which has yet to return to pre-pandemic levels largely due to weakness in consumer demand.
Real wages posted their biggest monthly fall in 19 months in December, separate data showed, hurting households’ purchasing power and boding ill for a stronger economic recovery.
Household spending fell 0.2% in December from a year earlier, government data showed, weaker than the market forecast of a 0.3% gain in a Reuters poll.
“Consumption can be expected to turn negative when comparing the current quarter and the October-December period,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
That meant the economy could see a contraction in January-March, he said, adding he still expected to see sharp growth in the October-December period on a strong rebound in services spending.
The month-on-month figures were nearly flat, gaining 0.1%, weaker than a forecast 0.7% rise. Over the October-December quarter, household spending rose a seasonally adjusted 4.6% from the previous three months, the data showed.
The weak December figures raise some concerns for policymakers hoping a rebound in consumer demand would support the economy as higher import costs due to soaring global inflation squeeze corporate profits.
Government data on Tuesday also showed inflation-adjusted real wages lost 2.2% year-on-year in December, the biggest fall since a 2.3% drop in May 2020, as global inflation and an increasing shift to part-time work hurt household purchasing power.
The pressure on real wages could lead consumers to save more money, while not buying any unnecessary things and spending less, Minami said.
“The overall momentum for consumption may be lost,” he added.
Japan’s economy is expected to have grown an annualised 5.8% in October-December due to low COVID-19 cases at the time, but the recent spread of the highly infectious Omicron variant has cast doubts on the strength of service spending.
The government is set to release preliminary October-December gross domestic product (GDP) data on Feb. 15.
(Reporting by Daniel Leussink; Editing by Sam Holmes and Karishma Singh)
