Japan: household expenditure falls sharply
Published 3 June 2014
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0.1 Detail
Figures released on 30 May show that April household expenditure fell 4.6% compared to a year ago. This was the largest drop since March 2011 when the earthquake hit. People spent much less on big items such as white goods, as they had purchased these before the introduction of the tax increase to avoid the additional cost.
Against the backdrop of a sharp fall in consumer demand on durable goods etc. after the VAT increase, industrial production in April declined 2.5% compared to the previous month. Transportation equipment production went down by 3.5% and electronic devices by 5.2%. However, manufacturers forecast that May production would increase by 1.7%, suggesting a moderate recovery is expected.
Inflation in April accelerated moderately. Core CPI (excluding fresh food) rose 3.2% compared to a year ago. This was the fastest change since February 1991 and the 11th consecutive monthly gain. Without the impact of VAT increase, core CPI would have been up by 1.5% (ie. 1.7% point impact from the tax increase for April and 2.0% for May, according to BOJ estimates). This is a moderate acceleration from 1.3% in March. May preliminary Tokyo area core CPI was up 2.8% after 2.7% in April. Tokyo area CPI is a leading indicator for nationwide CPI.
Labour demand remains firm. The unemployment rate was flat at 3.6% in April. The month saw 260,000 job increases compared to a year ago despite a slowdown in economic activities over the month. Manufacturing and medical & welfare sectors created 380,000 and 360,000 more jobs, respectively.
0.2 Comment
Most commentators expect the economic downturn due to the VAT increase to be limited and predict a recovery from this summer onwards. Recent moderate increases in wages as well as the Government’s 5.5 trillion yen (£32bn) stimulus.package should help the economy recover from the expected Q2 economic contraction.
The inflation data should be welcome news for Japan’s monetary authority. The moderate acceleration in CPI is consistent with the BOJ’s scenario. However, May Tokyo inflation excluding the VAT impact slowed down slightly to 0.8% from 1.0%, suggesting moderately weaker inflationary pressure in May than in April. The big difference between the BOJ’s inflation outlook and that of most private economists starts from this summer when the BOJ expects inflation to accelerate while private economists predict a deceleration. We will continue to monitor inflation data carefully as many judge that this will be the key determinant for whether additional monetary easing is to be implemented by the BOJ.
0.3 Disclaimer
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its
The inflation data should be welcome news for Japan’s monetary authority. The moderate acceleration in CPI is consistent with the BOJ’s scenario. However, May Tokyo inflation excluding the VAT impact slowed down slightly to 0.8% from 1.0%, suggesting moderately weaker inflationary pressure in May than in April. The big difference between the BOJ’s inflation outlook and that of most private economists starts from this summer when the BOJ expects inflation to accelerate while private economists predict a deceleration. We will continue to monitor inflation data carefully as many judge that this will be the key determinant for whether additional monetary easing is to be implemented by the BOJ.