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Japan household spending suffers biggest drop in 2½ years; outlook not as gloomy

TOKYO – Squeezed by rising prices, Japanese household spending suffered its biggest drop in nearly 2½ years, although volatility in some items meant the outlook might not be as gloomy as the headline figures suggested.

Japan’s economy grew much faster than expected in the second quarter, helped by the end of Covid-19 curbs and a resurgence in inbound tourism, and analysts expect private consumption to support overall growth amid weakness in global demand.

Household spending fell 5 per cent in July from a year earlier, official data showed on Tuesday, sliding for five consecutive months and more than the median market forecast for a 2.5 per cent decline.

On a seasonally adjusted month-on-month basis, household spending was down 2.7 per cent versus an estimated 0.5 per cent gain.

Spending on dining out, transport, culture and entertainment services increased with an uptick in the number of people who went out, but there were declines in a wide range of areas including food and housing, an official at the Ministry of Internal Affairs and Communications said.

“The impact of price hikes has been felt to some extent,” the official said, although he noted that the 5 per cent drop included items that fluctuate widely, such as housing and car purchases.

Japan’s core consumer price index, which includes oil products but excludes volatile fresh food prices, rose 3.1 per cent in August followed by a 3.3 per cent increase in the previous month. It held above the Bank of Japan’s 2 per cent inflation target for the 16th straight month.

On the whole, private consumption will continue to recover as economic activity normalises, and the decline in real wages is expected to narrow, said Mr Masato Koike, economist at Sompo Institute Plus. “Rising wages and the normalisation of economic activity will lead to a recovery in consumption,” he said.

This view was supported by a private survey showing Japan’s service-sector activity in August expanded at its quickest pace in three months, underpinned by robust consumer spending as inbound tourism regained momentum. REUTERS

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