Japan’s Oct household spending extends decline on COVID-19 drag

By Daniel Leussink

TOKYO (Reuters) -Japan’s household spending posted an annual drop for the third straight month in October, though the pace of decline slowed, as consumer sentiment struggled to stage a convincing recovery after coronavirus curbs ended.

The world’s third-largest economy has lagged other nations in its recovery from the health crisis, mostly due to sluggish consumption. Analysts expect consumer sentiment to pick up this quarter as local COVID-19 infections fell.

Household spending fell 0.6% in October from a year earlier, after a 1.9% decline in September and a 3.0% drop in August, government data showed, matching the median market forecast in a Reuters poll.

The figures highlighted that consumers’ mood was still cautious even after state of emergency curbs to contain the virus ended in September, said Takeshi Minami, chief economist at Norinchukin Research Institute.

“This was a weak result,” he said. “It feels like spending is slowly picking up but not in one go.”

The month-on-month figures were positive, posting a seasonally adjusted 3.4% rise, slightly weaker than a forecast of a 3.6% gain and slowing from a 5.0% month-on-month increase in September.

On a year-on-year basis, spending on overnight stays and eating out continued to decline, though the drop was smaller than in the prior month, while that on transportation rose.

Policymakers are hoping a rebound in domestic demand will support the economy as manufacturers navigate a global chip shortage and are hit by surging raw material prices.

The Japanese government unveiled a $490 billion spending package last month as it seeks to put its economy firmly on a recovery track, going against a global trend of unwinding crisis-mode stimulus.

Spending will likely benefit from the government’s plan to restart a domestic tourism campaign, which could push up the gross domestic product by about 1% next year, said Minami.

If the campaign would be restarted early next year, it would most likely boost second-quarter spending, Minami said, adding that growth was quite good in the fourth quarter last year when the government was also subsidising domestic travel.

But the economy was not expected to see any major boost from cash handouts for households with children, he added, as the money was likely to be added to savings.

Separate data on Tuesday showed the coincident indicator index, which consists of a range of data such as factory output, employment and retail sales, rose for the first time in four months in October.

Japan’s inflation-adjusted real wages slumped 0.7% year-on-year in October, falling for the second straight month and boding ill for a sustainable recovery of consumer sentiment.

(Reporting by Daniel Leussink; Additional reporting by Kantaro Komiya; Editing by Lincoln Feast and Clarence Fernandez.)