Japan's household spending posts fastest decline in 3.5 years

[TOKYO] Japan's household spending fell at the fastest pace in over three and a half years in October as consumers cut their purchases following a sales tax hike and as natural disasters disrupted business.

Household spending dropped 5.1 per cent in October from a year earlier, government data showed on Friday, the biggest fall since March 2016 when spending fell 5.3 per cent and weaker than the median forecast for a 3 per cent decline.

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

Compared with the previous month, household spending fell 11.5 per cent in October, the fastest drop since April 2014, when Japan raised the sale tax from 5 per cent to 8 per cent.

The month-on-month figure compared with the median forecast for a 9.8 per cent decline.

Analysts also 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.

Separate data showed real wages adjusted for inflation 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.

Japan's cabinet approved a US$122 billion fiscal package on Thursday to support stalling growth in the world's third-largest economy amid offshore risks 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 annualised 0.2 per cent in the third quarter, the weakest pace in a year, as the US-China trade war and soft global demand knocked exports.

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

REUTERS