–Spending on Traveling, Dining Remain Above 2021 When Covid State of Emergency Was in Place
–Spending Down M/M Amid Record Covid Cases Hit Many Regions from Late July
–Real Household Income Falls For 5th Straight Month on Rising Cost of Living
By Max Sato
(MaceNews) – Japan’s real household spending posted the third straight year-on-year rise in August, largely in reaction to restrained economic activity under last year’s Covid state of emergency, while spending slumped on the month more than expected as some people scaled back dining out and traveling amid record numbers of new coronavirus infections from late July to late August, data released Friday by the Ministry of Internal Affairs and Communications showed.
The government has refrained from imposing strict public health rules, as more people are fully vaccinated, to support economic recovery, particularly the pandemic-hit hospitality and tourism industries.
On the downside, real wages continued falling from year-earlier levels in August amid widespread price hikes for energy, food and durable goods, clouding the prospects for consumption growth in the July-September quarter, key to continued growth in GDP.
At its latest policy meeting on Sept. 21-22, the Bank of Japan board decided unanimously to maintain its super-low interest rate targets along the yield curve and large asset purchases to help the economy recover to pre-pandemic levels and anchor inflation around its stable 2% target.
The widening U.S.-Japan interest rate differential based on the Fed’s tightening and the BOJ’s persistent easing stance is one of the factors fueling the yen’s weakness against the dollar, which adds to already high import costs.
But BOJ Governor Haruhiko Kuroda defended the bank’s decision, pointing out that Japan still has a wide negative output gap and real wages are falling. He told reporters that there is no need to change the forward guidance of the bank’s easing stance for the next two to three years, citing the board’s projection that inflation will fall below 2% in fiscal 2023 and 2024 after posting a temporary spike due to elevated energy and commodities prices.
The key points from the monthly Family Income and Expenditure Survey on Households:
* Real average spending by households with two or more people rose 5.1% on the year in August, coming in weaker than the median economist forecast of a 7.3% rise (forecasts ranged from 4.7% to 8.7% gains). It was the third consecutive year-over-year increase and the fifth in the past 12 months, following a 3.4% rise in July, a 3.5% rebound in June and three months of decline, by 0.5% in May, 1.7% in April and 2.3% in March. The 5.1% gain was the largest since expenditures surged 6.9% in January.
* The increase in August was led by continued high spending on hotels, domestic package tours, trains fares and highway tolls as well as eating and drinking out, as seen in recent months. Expenditures on groceries, particularly fish, dropped on year as households had cooked more at home last year during the Covid state of emergency imposed on many regions from early January to mid-March and from late April until late September 2021.
* Households also trimmed spending on air conditioners and cooking appliances, compared to a year before when there was a large replacement demand for those appliances as people were advised to stay home during the Covid state of emergency. The same pattern was observed in July.
* On the month, real average household spending fell a seasonally adjusted 1.7% in August after falling 1.4% in July, rebounding 1.5% in June and plunging 1.9% in May. It was the sixth decrease in the past 12 months. It was much weaker than the consensus forecast of a 0.3% rise (economist forecasts ranged from a 1.2% fall to a 1.7% rise).
* The average real income of households with salaried workers slipped 1.8% on the year in August for the fifth drop in a row (up 1.6% in nominal terms, however), after falling 4.6% in July (down a nominal 1.6%) and 1.4% in June (up a nominal 1.4%). The annual consumer inflation rate excluding imputed rents is above 3% as more firms are passing higher costs onto consumers.
* The main bread-earner’s real income in the average household also marked the fifth straight year-on-year drop, down 3.4% (flat in nominal terms) in August after dipping 6.8% (down a nominal 3.9%) in July and 2.9% (up a nominal 0.2%) in June. By contrast, the average spouse income posted the seventh straight rise, up a real 5.2% (up a nominal 8.9%) in August, after rising just 0.3% (up a nominal 3.4%) in July and 6.9% (up a nominal 9.9%) in June. Firms have been raising wages for part-time workers, who are used as buffers during economic upswings and downswings, more than they do for full-time employees.
Trend: Gradual Nominal Wage Pickup Intact, Down in Real Terms
The pickup in nominal wages in Japan continued in August while real wages continued falling in the face of elevated costs for energy, food and durable goods, data released Friday by the Ministry of Health, Labour and Welfare showed.
Total monthly average cash earnings per regular employee in Japan posted the eighth straight year-on-year rise, up a preliminary 1.7% in August after rising 1.3% (revised down from 1.8%) in July, 2.0% in June and 1.0% in May. In real terms, however, average wages dipped 1.7% on year for the fifth straight drop after falling 1.8% (revised down from a 1.3% drop) in July, 0.6% in June and 1.8% in May.
Base wages rose 1.6% on year in August, marking the 10th straight gain after rising 0.9% (revised down from 1.1%) in July. The key indicator for overall wages has been on a modest recovery trend in the past year.