Japan: August consumption remains weak
Published 2 October 2014
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
Japanese household spending remains cautious despite gradual but steady improvement in overall labour conditions. Industrial production remains sluggish against the backdrop of such weak domestic demand and a slow recovery in exports. Latest economic data combined with the increasing public unpopularity of another VAT increase could influence the Government’s decision on the next VAT rise later this year.
Detail
Japan’s consumers remain cautious
Household expenditure in August fell by 4.7%, compared to a year ago (YOY), in real terms (i.e. adjusted by inflation), the 5th consecutive monthly decline. The rate of decline was larger than the market expectations (-3.6% YOY). Japanese consumers remain reluctant to buy big-ticket items such as consumer durables. Bad weather in August also affected consumption, causing expenditure on travelling and dining-out to contract noticeably. Separately released retail sales increased 1.2% YOY but confirmed the reduction in car (-1.7% YOY) and machinery sales (-3.5% YOY) during August.
The latest Nikkei survey has shown that 66% of people are against the planned October 2015 VAT increase, up 2% from another survey in early September.
Unemployment rate improves to 3.5%
The unemployment rate in August fell from 3.8% in July to 3.5%. Improved conditions for female employment supported the fall, with female unemployment dropping by 0.5% to 3.2%. Male unemployment rate remained flat at 3.8%. The net increase in job creation of 380,000 compared to a year ago included 270,000 female non-regular, lower paid, positions. Real wages keep falling resulting for the 14th consecutive month
For the sixth consecutive month, nominal wages including base salary, over-time pay and bonuses increased by 1.4% YOY in August but were lower than July’s 2.4% YOY which were driven by higher summer bonuses. However, real wages (adjusted by inflation) fell by 2.6% YOY, resulting in the 14th consecutive monthly fall.
Industrial production dropped unexpectedly amid soft domestic demand
In August, industrial production contracted 1.5% from July (MOM), compared to market expectations of a 0.3% MOM gain. Falls in transportation equipment (-3.8% MOM) and electric machinery (-3.2% MOM) contributed to the unexpected overall drop. September production figures are expected to rebound sharply to a 6.0% MOM gain, according to a manufacturing production survey.
Comment
Although there is some good news on the jobs front, as most of the new jobs created are non-regular and real wages are falling, people still lack any sense of long term financial or economic security, hence the low consumption figures. The growing unpopularity of the planned tax increase represents a real dilemma k for the Government, which will make their decision on the planned 2% tax rise more difficult.
Although we are unlikely to see major policy initiatives in the next few weeks, it appears that Policy makers will be reviewing further economic stimulus measures to ease anxieties. Given the tight fiscal conditions, there may be higher pressures on the Bank of Japan to do more.
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