Japan's household spending rises at quickest pace in 3 years as tariff risks loom

CNA

3 days ago

TOKYO :Japanese household spending surged at the fastest pace in nearly three years in May, offering some hopes that tepid consumption might be turning a corner even as risks from U.S. tariffs remain a drag on confidence and economic growth.
Analysts say consumers will be wary of the outlook at a time U.S. President Donald Trump's global trade war is raising uncertainty for businesses and policymakers worldwide.
Consumer spending in the world's fourth-largest economy in May rose 4.7 per cent from a year earlier, internal affairs ministry data showed on Friday, better than the median market forecast for a 1.2 per cent gain and rising at the fastest pace since the 5.1 per cent increase in August 2022.
On a seasonally adjusted, month-on-month basis, spending increased 4.6 per cent, versus an estimated 0.4 per cent uptick and rising at the quickest pace since March 2021 when it surged 6.7 per cent.
An internal affairs ministry official attributed the better-than-expected results to higher spending on one-off factors such as automotive-related products and others like eating out.
"The three-month moving average in household spending has been positive since December last year and consumption appears to be recovering," the official said.
Consumption and wage trends are among key factors the Bank of Japan is watching to gauge economic strength and decide how soon to raise interest rates.
Hefty pay hikes have been seen as essential to counter inflation-induced sharp increases in the cost of living.
Japanese companies agreed to raise wages by 5.25 per cent this year, marking the biggest pay hike in 34 years, the country's largest labour union group Rengo said on Thursday.
"With the yen's appreciation and the downward trend in crude oil prices, it is anticipated that real wages will turn positive year-on-year in the second half of the year as inflation slows," which would lead to a gradual recovery in consumption, said Yutaro Suzuki, an economist at Daiwa Securities.
However, Japanese policymakers and analysts are concerned that global trade tensions triggered by Trump's tariff policies may dent the pay-hike momentum and complicate BOJ's efforts to normalise monetary policy.
The internal affairs ministry also said consumers remained wary of loosening their purse strings on items with higher prices, with spending on rice dropping by 8.2 per cent in May from a year ago since they cut back on purchasing it.
On the trade front, significant uncertainty remained. Trump on Tuesday cast doubt on a possible deal with Japan, indicating that he could impose a tariff of 30 per cent or 35 per cent on Japanese imports - well above the 24 per cent rate he announced on April 2 and then paused until July 9.
"If corporate earnings are significantly squeezed (due to the U.S. tariffs), this could have a negative impact on winter bonuses and spring labour negotiations in 2026, which could lead to a slowdown in wage increases," said Masato Koike, senior economist at Sompo Institute Plus.