Reuters, Feb 25, 2015
Japanese households cut spending further and retail sales fell for the first time in seven months in January, data on Friday is likely to show, a sign the central bank’s radical stimulus has yet to convince consumers that inflation will take hold.
After limping out of recession in the final quarter of last year, the world’s third-largest economy is showing signs of life as exports and output rebound on solid U.S. and Asian demand.
But the weak consumer mood has kept a lid on spending as wages have yet to increase enough to make up for the sales tax hike last April, casting doubt on the strength of the recovery.
Soft consumption is a headache for the Bank of Japan, which hopes its aggressive money printing will fuel expectations that prices will rise ahead and prompt households to spend more now.
“Household spending is recovering but only very moderately because income hasn’t risen much yet,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“There’s no doubt the economy will recover as the lower cost of oil is clearly positive for growth. If March wage negotiations lead to higher base pay, that’s also good for consumers. It just takes time for all these factors to help consumption,” he said.
A slew of data on Friday will underline the patchy nature of Japan’s economic recovery.
Factory output is likely to have risen 2.7 percent in January from December, a Reuters poll showed.
But household spending likely fell an annual 4.1 percent in January, down for a tenth straight month, and retail sales are forecast to have dropped 1.3 percent, according to the poll.
The mixed data will keep the BOJ under pressure to maintain its stimulus, although Governor Haruhiko Kuroda has stressed he saw no need to ease again soon.
Separate data is also likely to underscore the dilemma the BOJ faces as slumping oil prices pull inflation further away from its ambitious 2 percent target.
Stripping out the effects of last year’s tax hike, core consumer price index (CPI) likely hit 0.3 percent in the year to January, slowing from 0.5 percent in December, the poll showed.
The BOJ argues that falling oil prices will lift inflation in the long run as it allows households and companies to spend more on other goods, thereby boosting the economy.
But analysts are deeply suspicious of whether the BOJ can meet its pledge of hitting its inflation target in the year beginning in April, as they expect it to take at least six months for the benefits of oil price falls to boost growth.