–Spending on Traveling, Dining Out Stays Above Year-Earlier Levels on Reopening Economy
–Real Household Income Dip; Real Wages Down Amid Widespread Retail Price Hikes
By Max Sato
(MaceNews) – Japan’s real household spending posted the fifth straight year-on-year rise in October and maintained a gain on the month as people continued to eat out, shop and travel despite signs that another wave of coronavirus infections was emerging, data released Tuesday by the Ministry of Internal Affairs and Communications showed.
The seventh wave of the pandemic had eased by early September after the number of new inflections hit record highs from late July to late August, but government Covid panel members have warned that new Covid cases are rising again in what they see as an eighth round of a spike in Japan.
Personal expenditures on traveling and dining out appears to be intact in October, when the government launched a new nationwide program to provide subsidies for domestic traveling and eased border restrictions, hoping to support the pandemic-hit tourism industry.
At the same time, the pace of year-over-year decrease in real wages accelerated in October, when many suppliers of food and beverages among other items jacked up prices at the start of the second half of fiscal 2022 to reflect elevated producer and import costs, which is eroding the purchasing power of many households.
The government plans to provide fiscal support to households early next year to help lower their spending on utilities while the central bank has vowed to prop up the fragile economic recovery by keeping borrowing costs very low.
At its latest policy meeting on Oct. 27-28, 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 board is expected to maintain its basic easing stance at its next meeting on Dec. 19-20.
BOJ Governor Haruhiko Kuroda testified in parliament in October that the bank may make its yield curve control framework “flexible” in the future when it becomes necessary to adjust its policy stance, but also argued that at this point it is best for the bank to keep its easing stance while the economy has a negative output gap and real wages are falling.
The key points from the monthly Family Income and Expenditure Survey on Households:
* Real average spending by households with two or more people rose 1.2% on the year in October, coming in slightly firmer than the median economist forecast of a 1.0% rise (forecasts ranged from a 0.2% drop to a 1.3% gain). It was the fifth consecutive year-over-year rise and the seventh in the past 12 months. It followed increases of 2.3% in September, 5.1% in August, 3.4% rise in July and a 3.5% rebound in June. August’s 5.1% gain was the largest since expenditures surged 6.9% in January 2022.
* The increase in October was led by continued spending on hotels, domestic package tours, train fares and toll roads as well as eating and drinking out, largely as seen in recent months. Even compared to the pre-pandemic October 2019, spending on accommodations jumped 52.6% after falling 9.0% in September. Spending on train fares also turned positive, up 8.0% from three years earlier, following a 28.2% drop the previous month.
* By contrast, expenditures on groceries, particularly fish, dropped on year as households had cooked more at home last year while spending on beer and other alcoholic beverages also dipped now that people are going to the bars as strict public health rules have eased. The Covid state of emergency was imposed on many regions from early January to mid-March in 2021 and from late April until late September that year.
* On the month, real average household spending rose a seasonally adjusted 1.1% in October after rebounding 1.8% in September following decreases of 1.7% in August and 1.4% in July, a 1.5% rebound in June and a 1.9% plunge in May. It was the sixth increase in the past 12 months and below the consensus forecast of a 2.0% rise (economist forecasts ranged from a 0.1% dip to a 2.9% surge).
* Japan’s gross domestic product for the July-September quarter unexpectedly slumped 0.3%, or an annualized 1.2% for the first quarter-on-quarter contraction in four quarters as a surge in imports led by high costs and easing supply bottlenecks slashed net exports more sharply than expected, dampening the effects of resilient business investment and consumer spending. Private consumption, which accounts for about 55% of GDP, rose 0.3% on quarter in the third quarter, following a 1.2% surge in the second quarter.
* The average real income of households with salaried workers fell 0.9% (up 3.5% in nominal terms) on the year in October after posting the first rise in six months in September with a small 0.2% gain (up a nominal 3.7%) and marking real decreases of 1.8% (up a nominal 1.6%) in August, 4.6% in July (down a nominal 1.6%) and 1.4% in June (up a nominal 1.4%). The annual consumer inflation rate is well above 3% as more firms are passing higher costs onto consumers.
* The main bread-earner’s real income in the average household marked the seventh straight year-on-year drop, down 2.3% (up 2.0% in nominal terms) in October, after falling 2.2% (up a nominal 1.2%) in September, 3.4% (flat in nominal terms) in August and 6.8% (down a nominal 3.9%) in July. By contrast, the average spouse income posted the ninth straight rise, up a real 6.6% (up a nominal 11.3%) in October, after rising 5.7% (up a nominal 9.4%) in September, 5.2% (up a nominal 8.9%) in August and 0.3% (up a nominal 3.4%) in July. Firms tend to use non-regular workers as buffers during economic swings. As the economy reopens further, retailers, hotels and restaurants are hiring more people.
Trend: Gradual Nominal Wage Pickup Intact, Down in Real Terms
The gradual pickup in nominal wages in Japan continued while the drop in real wages accelerated as the prices for food and durable goods are on the uptrend and energy costs remain high, data released Tuesday by the Ministry of Health, Labour and Welfare showed.
Total monthly average cash earnings per regular employee in Japan posted the 10th straight year-on-year rise, up a preliminary 1.8% in October, after rising a revised 2.2% in September, 1.7% in August and 1.3% in July.
In real terms, however, average wages plunged 2.6% on year for the seventh straight drop after falling a revised 1.2% in September, 1.7% in August and 1.8% in July. To calculate real wages, the ministry uses the overall consumer price index minus imputed rents, which surged 4.4% on year in October, far above the 3.7% rise in total CPI and the 3.6% gain in core CPI (excluding fresh food).
Base wages rose 1.3% on year in October, marking the 12th straight gain after rising 1.4% (revised up from 1.3%) in September. The key indicator for overall wages has been on a modest recovery trend this year.