Japan’s household spending slumps by record amid pandemic

Japan’s household spending fell at a record pace in May as people followed authorities’ calls to stay at home to contain the coronavirus, pushing the world’s third-largest economy deeper into decline.

Household spending slumped 16.2 percent in May from a year earlier, government data showed on Tuesday, falling at the quickest pace since comparable data became available in 2001.

The drop, which was larger than a median market forecast for a 12.2 percent fall, extended an 11.1 percent decline in April.

The large drop will add to pressure on policymakers to step up efforts to restore confidence among businesses and consumers.

A spending recovery is expected to be slow and fragile as people have shown their reluctance to spend even after the nationwide state of emergency was lifted in May.

“The pace of recovery is worrying,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.

“Even though the government has rolled out policy measures, it’s difficult for their impact to come out quickly.”

Mixed picture

Still, the Bank of Japan is expected to maintain its view in its quarterly report next week that the economy will gradually recover later this year.

Tuesday’s data showed large cuts in spending on hotels, transportation and eating out as people stayed at home.

On the other hand, the lockdown and the virus meant people spent more on pork and beef, alcohol and sanitary goods like face masks and paper towels.

Last year’s unprecedented 10-day Golden Week holiday – celebrated in April and May 2019 to celebrate the enthronement of then-Crown Prince Naruhito – made the drop in spending more pronounced, partly due to larger than usual spending on tourism in 2019, a government official said.

Separate data on Tuesday showed May inflation-adjusted real wages dropped at the fastest pace since June 2015, adding to signs of stress in the labour market.

Policymakers hope a pickup in domestic demand will be strong enough to bring about an economic recovery, as long as the country is able to avert a big second wave of coronavirus infections.

The government has already announced two spending packages worth a combined $2.2 trillion to offset the hit from the pandemic, including cash handouts of 100,000 yen ($932) per citizen.

But spending could take a larger hit going forward if the worsening business outlook forces firms to cut bonuses, especially in winter, or fire more workers.

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