08 Nov 2019
Household spending in Japan increased at the all-time fastest rate in September, ahead of the October sales tax hike.
Japan’s household spending rose 9.5% in September compared to the year before, the fastest rate of increase since comparable data became available back in 2001, and more robust than the average forecast for a 7.8% rise, as per government data on Friday.
September marked the tenth consecutive month of gains, Reuters reports, the longest run in 18 years.
Spending rose 7.2% in March 2014, a month before the last sales tax hike, but the increased levy resulted in a slowdown in consumer spending and a steep economic slump.
In comparison to the previous month, spending grew 5.5% in September, compared to the average estimate for a 3.8% rise.
Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute commented: “We expect consumer spending will turn severe in October-December after pre-tax hike gains and the economy is also expected to contract.”
Shinke is of the opinion that consumer spending and Japan’s economy will rally in Q1 next year, following an unexpected pullback in the present quarter, but concerns regarding the outlook are still prevalent.
He added: “Consumer sentiment has stayed weak despite the government steps to mitigate the pain from the tax hike. Although deterioration in exports seems to be easing, we need to be cautious about their outlook, so there are risks to the economy.”
Japan implemented a twice-delayed sales tax increase on October 1 from 8% to 10%. The move was seen as crucial in repairing Japan’s tattered finances, but it could tip the economy into recession by hampering consumer sentiment.
Furthermore, the subdued recovery in wages is sparking concerns about the outlook for private spending and the economy as strong domestic consumption has up to now partially countered weak global demand.
Although separate data revealed real wages adjusted for inflation increased for the first time in nine months in September, the outlook is clouded by the sales tax rise and the global slowdown.
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