Japanese household spending weakens amid rising prices

January 10, 2025 (MLN): Japanese household spending declined more moderately than anticipated in November, according to government data released on Friday.

However, overall consumption remained weak, pressured by rising prices.

Strong wage hikes are expected in pay negotiations this spring, as Reuters reported.

However, analysts warn that inflation could limit the recovery in real wages and personal consumption, creating uncertainty about the Bank of Japan's rate hike plans.

Consumer spending dropped 0.4% in November year-on-year, data from the internal affairs ministry showed, slightly better than the median market forecast for a 0.6% decline.

On a seasonally adjusted, month-on-month basis, however, spending increased 0.4%, versus an expected 0.9% fall.

"The negative margin is shrinking, but consumption is at a standstill," said an internal affairs ministry official, adding belt-tightening consumers are opting for cheaper alternatives such as chicken instead of beef.

Consumers cut spending on food, clothing and entertainment, while expenditure in education and housing went up, the data showed.

The warmer weather also held consumers back from purchasing seasonal apparel and air conditioners, the official said.

This year's pay negotiations are believed to result in a certain degree of wage increases, but the soaring prices of food and the depreciation of the yen have meant that other items have also remained higher than initially expected," said Masato Koike, senior economist at Sompo Institute Plus.

Consumption and wage trends are among key factors the Bank of Japan (BOJ) is watching to gauge economic strength and decide how soon to raise interest rates.

November's pay data released on Thursday showed inflation-adjusted wages slid for the fourth straight month in November, dragged by higher prices even though base pay grew at the fastest pace in three decades.

"It's difficult to imagine a scenario where real wages and personal consumption will grow," Koike said, adding there were few factors backing a BOJ rate hike at the Jan.23-24 policy meeting.

The BOJ ended massive monetary stimulus and raised interest rates to 0.25% last year.

While some investors are betting the next rate hike will take place this month, others see a stronger chance in March.

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