Japan’s households continue to cut spending despite wage gains

Japan’s household spending unexpectedly fell for a seventh month even as real wages continued to increase, reflecting the impact of persistent inflation on consumer sentiment. Outlays by households adjusted for inflation dropped 3.3% in June from a year earlier, the Ministry of Internal Affairs and Communications reported Friday. Economists had forecast a 0.9% increase. Compared with May, spending declined 6.4% on a seasonally adjusted basis. The decline in overall spending was led by drops in spending on food, utilities, transportation and communications and apparel. Outlays for education rose along with spending on home maintenance. Falling consumption clouds Japan’s domestic demand-led growth outlook The fall in consumption clouds prospects for domestic demand-led growth even as government subsidies have capped utility costs and inflation-adjusted wages have advanced every month this year. While consumer confidence rose in June, the index remained well below its 10-year and 20-year averages. Still, because the data can be volatile, the numbers for June don’t necessarily point to a downturn, according to Takeshi Minami, chief economist at the Norinchukin Research Institute. “While consumption may have stagnated slightly in June, I believe it remained resilient overall for the second quarter, and I forecast positive GDP growth,” Minami said. The government is scheduled to report its preliminary results for second-quarter gross domestic product on August 17. Bank of Japan and government subsidies confront stubborn inflation pressure Last week, Bank of Japan Governor Kazuo Ueda emphasized that he sees greater upside risks to the price outlook and any upside price surprises would become more costly as the inflation trend is now getting very close to the 2% target the bank adopted more than 13 years ago. Prime Minister Sanae Takaichi has deployed an array of subsidies to soften the blow from inflation, including aid to lower utility fees and cap gasoline prices. The prime minister also will cut the sales tax on food to 1% from the current 8% to further help households with inflation. The reduction is expected to start in April 2027 and remain in effect for two years before the tax rate returns to the original level. Japan’s major food and beverage companies have been raising prices on their products in the face of rising input costs owing to the weak yen and a labor shortage. Teikoku Databank reported that firms planned price increases for 2,566 products in July, up nearly 22% from a year earlier. Real wages have risen every month this year, with a 1.6% gain in June. Takaichi has cited real wages and a decline in consumer inflation as signs that the administration’s price relief measures have been working. “Wage increases have been substantial, and thanks to the government’s subsidies, I don’t think rising prices have affected consumers as much as we had feared,” Minami said. “Since real wages are expected to remain positive going forward, I don’t think consumption will plunge down the road.” By Yoshiaki Nohara

Japan’s households continue to cut spending despite wage gains

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Japan’s households continue to cut spending despite wage gains

How Bottega Veneta weaved China’s forever it bag