Japan consumer spending, factory output skid after sales tax hike

Thu May 29, 2014 9:34pm EDT
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By Tetsushi Kajimoto and Stanley White

TOKYO (Reuters) - Japan's household spending in April fell at the fastest rate in three years in a sign that consumption could be slow to recover from an increase in the nationwide sales tax, raising questions over the pace of economic recovery.

Industrial production fell more than expected in April as companies cut output to avoid a pile up in inventories in the lull after the sales tax hike took effect.

BOJ officials have repeatedly said they are confident spending will quickly recover as the labor market remains tight, but the bigger-than-expected spending drop in April and a slowdown in factory activity could raise the stakes for monetary policy.

"Spending will recover from May, but sales of durable goods look weak and this could be a drag on overall spending," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

"The government can afford to let the spending in its stimulus package run its course. The BOJ doesn't need to move now, but it needs to keep an eye on the situation."

Japanese household spending fell 4.6 percent in April from a year ago, more than the median market forecast for a 3.2 percent annual decline. That marked the fastest annual decline since March 2011, when an exceptionally powerful earthquake triggered a nuclear disaster.

Compared to the previous month, spending tumbled by a record 13.3 percent in April, more than the 13.0 percent decline expected by economists.

Government data published with the new figures show that household spending fell further after the April 1 sales tax hike than it did after the 3 percent sales tax in was imposed in 1989, and when it raised the tax to 5 percent in 1997.   Continued...

A man walks past a display window of a luxury brand at Tokyo's Ginza shopping district May 29, 2014. REUTERS/Yuya Shino