Japan spending extends growth but inflation risks loom

TOKYO: Japan’s household spending extended growth in July for a second straight month despite a resurgence in Covid-19 cases, but inflationary pressures from the yen’s slump to a 24-year-low is casting doubt over the pace of consumption.

From falling real wages to shrinking service sector activity, data this week has shown private consumption stalling, undermining some of the gains made in April to June.

Household spending rose 3.4% in July from a year earlier, government data showed yesterday.

The reading was lower than economists’ median estimate of a 4.2% gain and followed 3.5% growth in June. Compared with a month earlier, spending decreased 1.4% in July, bigger than the forecast 0.6% fall.

Japan saw a rapid increase in Covid cases in the month and reported the world’s highest infections in the week of July 24.

But the government has not reinstated curbs and instead hopes to reopen the fragile economy that in April to June finally regained pre-pandemic levels, lagging global peers.

The biggest risk Japanese consumers face is rising prices, analysts said, as global commodity inflation and a weak yen jacked up the cost of imported goods.

The yen fell beyond 140 per US dollar for the first time since 1998 last week.

If the yen remains at 140 per greenback for the next six months, Japanese households will be forced to spend 1.3% more than the previous year for food, energy and other essential costs, according to an estimate by Saisuke Sakai, senior economist at Mizuho Research and Technologies.

“Households are taking the hit of higher inflation with the yen’s further decline, which inevitably drags down private consumption,” he said.

He added that the chance of Japan’s core inflation hitting 3% in the final three months of this year is heightening. — Reuters