06 Dec 2019
Japanese household spending declined in October for the first time in close to a year as the sales tax rise at the beginning of the month led consumers to curb spending.
Household spending fell 5.1% in October compared to the same time last year, as per government data published on Friday, down for the first time in 11 months and the biggest drop since March 2016 when spending dropped 5.3%. The figure was also weaker than the average forecast for a 3.0% fall.
These latest statistics show a sharp turnaround from the 9.5% leap in September, Reuters reports, the fastest growth on record as consumers rushed spending ahead of the sales tax increase from 8% to 10% that came into effect on October 1.
Taro Saito, executive research fellow at NLI Research Institute commented: “Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending.
“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March but such recovery won’t be strong enough.”
Household spending fell 4.6% in April 2014 when the last sales tax increase took place from 5% to 8%. The sector didn’t return to growth until a year later.
In comparison to the previous month, household spending declined 11.5% in October, the quickest fall since April 2014, a faster drop than the average 9.8% forecast.
Another factor contributing to the downbeat data, according to analysts, was the typhoon in October that led many shops and restaurants to temporarily close.
In addition, real wages adjusted for inflation moved up for the second consecutive month in October. However, the increased tax and weak global economy heightened concerns over consumer spending and the economy overall.
On Thursday, Japan announced a $122 billion fiscal package to bolster growth and as policymakers look to maintain activity after the 2020 Tokyo Olympic Games.
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