Japan’s spending downturn, wages decline heighten pressure on economy

By Kantaro Komiya

TOKYO (Reuters) – 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% in March from a year earlier, the data showed, against economists’ median forecast for a 0.4% rise and following a 1.6% gain in February.

It marked the biggest decline since March 2022’s 2.3%, when Japan was still trying to curb the spread of coronavirus.

On a seasonally adjusted, month-on-month basis, spending decreased 0.8%, versus an estimated 1.5% increase and posting a second month of decline after being down 2.4% in February.

For the full fiscal year 2022 that ended in March, household spending rose 0.7%, slowing from 1.6% expansion in fiscal 2021.

Separate data showed Japanese real wages falling 2.9% in March, marking the full year of declines that started in April 2022 on decades-high consumer inflation.

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 labour talks, whether the trend spreads to smaller businesses is key to the outlook for monetary policy normalisation 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 annualised 1.4% in January-March and is set continue growing at the same pace in April-June, economists in the latest Reuters poll showed last month.

(Reporting by Kantaro Komiya; Editing by Shri Navaratnam)