Japan’s Households Cut Spending in December Before Emergency

(Bloomberg) -- Japan’s household spending edged down in December, falling for the first time in three months, before the spread of coronavirus forced the government to call another state of emergency early this year.

Spending slipped 0.6% from the prior year, the ministry of internal affairs reported Friday. Economists had forecast outlays falling 1.8%.

Key Insights

• The virus’s spread has worsened considerably in Japan since December so the slump in consumer spending is likely to deepen. Analysts see a plunge in private consumption this quarter amid an extended state of emergency driving the economy back into contraction.
• The state of emergency called in January by Prime Minister Yoshihide Suga was extended this week until March 7, prolonging the pain for restaurants, bars and other businesses in Tokyo and the country’s other big cities.
• A slide in household outlays is likely to confirm a cautious view at the Bank of Japan, which last month downgraded its assessment of consumer spending. Deputy Governor Masazumi Wakatabe this week said any improvement in the labor market or wages are likely to be hampered by the virus for the time being.
• For now, government and central bank stimulus has helped hold the unemployment rate at a remarkably low level of 2.9%, but economic anxiety and the biggest cuts to cut winter bonuses since the financial crisis could restrain spending in coming months.

What Bloomberg Economics Says...

“Looking ahead, we see spending shrinking in coming months, pressured by the state of emergency called in January. Declines in winter bonus payments and wages are another reason for consumers to reduce spending, even if the virus is brought under control in 1Q.”

--Yuki Masujima, economist

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• Compared with November, household spending increased 0.9%.

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