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Japan's household spending drops for first time in three months

Japan's household spending drops for first time in three months

Japan Times04-04-2025

Japan's households cut back on spending as inflation remained elevated, in a sign of vulnerability in a key pocket of the economy before sweeping U.S. tariffs hit the country.
Household outlays, adjusted for inflation, declined 0.5% in February from a year earlier, the internal affairs ministry reported Friday. The result compared with the median economist estimate of a 0.8% decline. The drop was led by falling outlays on clothes and footwear, housing and food.
Consumer spending, accounting for more than a half of the economy, is a key component of gross domestic product that is monitored closely by Bank of Japan Gov. Kazuo Ueda as he mulls the bank's policy path. Inflation has stayed at or above the BOJ's price target for almost three years, sapping spending power, and the latest tariffs from the United States are now expected to weaken the economy further.
"We expect personal consumption will be negative compared to the previous quarter in the GDP for the January-March period,' said Shinichiro Kobayashi, chief economist at Mitsubishi UFJ Research and Consulting. "Consumers may not feel a direct impact from U.S. tariffs, but with the stock market falling so much, consumer sentiment is bound to worsen.'
The data comes after U.S. President Donald Trump announced across-the-board 24% levies on imports from Japan, which may face a double blow from the measures. The duties will have an immediate impact on the nation's exports. There is also the likely effect on the U.S. economy that could further undermine demand for Japanese goods. Economists say the U.S. will probably see growth slow to an anemic pace even as inflation stays high.
Policymakers are watching closely to see if the tariffs trigger a severe downturn in Japan, with some predicting a hit of more than 0.5 percentage point to growth. New 25% car tariffs also took effect Thursday.
Until now, data were relatively robust. Japan's overall price growth slowed less than expected to 3.7% in February, driven by food inflation. The price of rice rose 81% from a year earlier, drawing attention from lawmakers concerned about rising household frustration over the cost of living crunch. Base pay for workers increased 3.1% in January, the fastest pace in 32 years although real income dropped.
In the latest month, among the few areas that saw increased outlays were utilities, for which expenditures rose 8.7% in real terms versus a year earlier.
Prime Minister Shigeru Ishiba's government managed to pass the national budget for this year earlier this week, just before the new fiscal year started. In doing so, he pledged to mitigate the impact from inflation on households. Partly due to elevated costs of living, Ishiba's popularity has sagged. The premier will face a key test in national elections likely to be held in July.
The government is considering putting together an extra budget to soften the blow from the U.S. tariffs, the Asahi newspaper reported Friday.
Consumer spending, adjusted for inflation, stayed below prepandemic levels last year in Japan's GDP data. Economists expect overall annualized economic growth to be contained at 0.4% this quarter, partly due to lackluster spending momentum, according to a survey last month.

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