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Japanese households increased spending for a ninth month in August without splurging ahead of a sales tax hike that took effect this month, suggesting the boom-and-bust consumption pattern that accompanied previous tax increases may not materialize this time.
Household spending rose 1% from a year earlier, data from the internal affairs ministry showed Tuesday, matching the median forecast of economists. Separate figures showed wages fell for a seventh month this year, offering little hope that higher pay might fuel consumption over the coming months.
Consumer spending has supported Japan’s economy this year as the U.S.-China trade war and a cooling of tech demand weighs on global demand and Japanese exports.The Bank of Japan, which meets this month amid expectations for more easing, will be watching how shoppers respond to the 2 percentage point sales-tax hike that took effect Oct. 1. The last increase in 2014 triggered a spending boom before the hike that was followed by a bust that caused the economy to shrink more than 7% the next quarter.This time around, a raft of government measures, including tax breaks on house and car purchases, have helped soften the boom-bust cycle, but economists still forecast a 2.7% contraction in 4Q GDP.“I don’t think we’re going to see the kind of dent in consumer spending that we saw in 2014,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “But the relatively softer numbers now are also related to a weak underlying trend in consumer spending, which is worrisome because it’s only going to get worse after the tax hike.”MORE: The Tax Hike the Bank of Japan Can’t Afford to IgnoreConsumers are in an increasingly gloomy mood. Confidence dropped in September to its lowest level since June 2011, according to government figures published last week.
What Bloomberg’s Economist Says
“Spending may stay firm in September before an inevitable pullback in October. Once this near-term volatility has passed, other drivers will start to dominate -- wages and the job market. Recent signals from those are mixed -- suggesting a more or less flat outlook for consumer spending after the tax shock fades.”
Yuki Masujima, economist
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In August, overall labor cash earnings ticked down 0.2% from a year earlier, according to the labor ministry, matching analysts’ median estimate. Economists caution that the underlying trend in wages is not entirely clear due to sampling issues with the data.Real wages, which factor in inflation, have fallen eight months running, with a 0.6% drop in August that was also in line with estimates.The current account balance for August was a surplus of 2.16 trillion yen, compared with a 2.07 trillion yen surplus forecast by economists.
(Adds comment from Bloomberg’s economist and detail on wage data.)
--With assistance from Tomoko Sato and Toru Fujioka.
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