Japan’s May household spending growth slows from previous month By Reuters

By Daniel Leussink

TOKYO (Reuters) -Japan’s household spending rose at a double-digit rate in May as consumers bought cars and mobile phones, though the pace of growth slowed from the prior month as a new wave of COVID-19 infections weighed on consumer confidence.

Japan’s economy is struggling to shake off the drag from the coronavirus pandemic after the government put in place “quasi-emergency” measures in Tokyo and other major areas to curb a resurgence of infections.

Household spending grew 11.6% year-on-year in May, the third month of gains, after a 13.0% rise in April, government data showed on Tuesday. That was stronger than a median market forecast for a 10.9% gain in a Reuters poll.

But the gains were heavily skewed by the recoil effect from last year’s plunge, when the pandemic and a nationwide state of emergency shuttered businesses and disrupted day to day life.

Stripping out big-ticket items like housing, cars and gifts, household spending was up 8.9% year-on-year, but down 6.5% compared to the same month two years earlier – a sign the recovery is taking time to bed in.

“It will be hard for services spending to recover if curbs on economic activity are not lifted completely,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

“While the vaccination rollout is progressing more quickly than thought, its (economic) impact may not be seen until September or later.”

The month-on-month figures showed a 2.1% contraction compared with a forecast decline of 3.7%, the Ministry of Internal Affairs and Communications data showed.

While May’s expenditure declined less from the previous month than thought, weak car sales in June – partly due to the impact on supply of a semiconductor shortage – were likely to weigh on last month’s spending, Tsunoda said.

The spending growth in May is unlikely to dispel worries that Japan is lagging recoveries seen in other major economies such as the United States, which the International Monetary Fund is forecasting to grow 7.0% this year – the fastest pace in a generation.

The combination of the risk of another spike in infections and a late vaccination drive in the nation has dented both consumer and business confidence.

Separate data on Tuesday showed inflation-adjusted real wages in May posted the biggest year-on-year rise since June 2018, in part due to a year-on-year surge in overtime pay.

Some analysts fear Japan’s economy may fall back into recession in the second quarter, defined as two straight quarters of contraction, as consumer and business confidence took a hit from measures to stem a rise in coronavirus infections.

On Monday, a private business survey showed Japan’s services sector activity shrank for the 17th straight month in June.