Weak household spending dampens Japan recovery hopes

A shopper walks past personal care products displayed in a drug store in Kitakyushu, Japan.
A shopper walks past personal care products displayed in a drug store in Kitakyushu, Japan.PHOTO: BLOOMBERG

TOKYO (AFP) - Japan's household spending fell in December for the 10th consecutive month, the government said on Tuesday (Jan 31), the latest in a series of blows to the nation's faltering growth plan.

Prime Minister Shinzo Abe came to office in December 2012 and launched his "Abenomics" growth plan - a mix of massive monetary easing, government spending and red-tape slashing - but growth remains fragile and inflation well below target.

The world's third-largest economy has been struggling to reverse years of on-and-off deflation and lacklustre economic growth.

Last week, Japan said it logged its first annual consumer price decline in four years, as weak household spending and meagre wage hikes keep a lid on prices.

Tuesday's official figures showed that household spending declined 0.3 per cent from the year before, though better than market expectations of a 0.9 per cent decline.

The job market, however, remained tight. The unemployment rate was unchanged at 3.1 per cent in December, while the ratio of job offers to job seekers stood at 1.43 in December - meaning there were 143 jobs for every 100 job hunters - the highest since 1991.

The government also said factory output gained 0.5 per cent in December from the previous month, slightly better than expectations of a 0.3 per cent increase.

Bank of Japan (BOJ) officials have blamed external factors, such as falling energy prices and uncertainty related to emerging economies, for their failure to achieve a promised two percent inflation level.

The central bank now expects to reach that goal by March 2019 - four years later than planned.

The BOJ concludes its first monetary policy meeting of the year later Tuesday with governor Haruhiko Kuroda scheduled to hold an afternoon news conference.

"While the corporate sector is recovering steadily, consumer sentiment remains stagnant as people are concerned about future uncertainties," said Yusuke Shimoda, economist at Japan Research Institute.

"The nation's entire economy is lacking strength as spending, which accounts for some 60 per cent of GDP, is still slowing," Shimoda told AFP.

Deflation can discourage spending by consumers, who might postpone purchases until prices drop further or just save their money, creating further pressure on businesses.

The BOJ had hoped that consumers would spend more if prices were rising, but wage growth has fallen below expectations, meaning workers have less money to spend.

Falling prices also discourage companies from making capital investments, while also slowing production.