Japan’s households tighten purse strings as sales tax, typhoon hit

Japan’s households tighten purse strings as sales tax, typhoon hit

By Kaori Kaneko

TOKYO (Reuters) – Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1% in October from a year earlier, government data showed on Friday, down for the first time in 11 months and the biggest fall since March 2016 when spending fell 5.3% and weaker than the median forecast for a 3.0% decline.

That marked a sharp reversal from the 9.5% jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 sales tax hike from 8% to 10%.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March but such recovery won’t be strong enough.”

Household spending fell 4.6% in April 2014 when Japan last raised the sales tax to 8% from 5%. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5% in October, the fastest drop since April 2014, a faster decline than the median 9.8% forecast.

Analysts said a powerful typhoon in October, which lashed wide swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Real wages adjusted for inflation, meanwhile, edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper than expected slowdown. The economy grew an annualized 0.2% in the third quarter, the weakest pace in a year.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.

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Source : Reuters Link

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