Less Consumer Spending Hampers Economic Growth of Japan

Asset bubble in Tokyo could be reversed for a long run since the economic expansion in the 1980s as the data signifies consumption is not sufficient to boost growth if trade friction could overpower exports.

Household spending declined by 0.9 percent in February last year. The biggest decline was 1.4 percent in April last year. On the other hand, the inflation has adjusted real wages for three consecutive months in February that reduced the capacity of consumers to buy.

A slow consumption would add more problems for Japanese policymakers as the recent increase, as well as, concerns on trade wars is likely to affect the country being export-reliant. “External demand and consumption aren’t very strong, so economic growth may have ground to a halt in the first quarter,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

A strong yen could negatively affect the profit of exporters which becomes a factor for companies to keep the wages unchanged. Thus, consumption would not rise up.

Given the cold weather, consumers are likely to stay at home. Also, heavy snow would induce higher prices in vegetables that make the household to be more cautious and spend less on non-necessities in February, according to analysts.

The decline in spending also shifted the median market forecast of 0.3 percent gain that grew by 1.9 percent in January.

A separate data reflected the drop in real wages for the third straight month in February that supports the 2 percent inflation target of the Bank of Japan, which is still the target and the BOJ is reducing the stimulus soon.