TOKYO: Japanese household spending unexpectedly fell in April while inflation and factory output were also lackluster, a string of official data showed on Friday, aggravating concerns about the world’s third-largest economy.
The figures come as economists warn Japan could see a weak second quarter, following a better-than-expected 0.6 percent expansion—or 2.4 percent at an annualized rate—during the first three months of the year.
Household spending remains stubbornly weak as the Bank of Japan struggles to boost prices in a bid to end decades of deflation for good and kickstart the long-lumbering economy.
Despite wage rises at big firms and a tighter labor market, convincing people to splash out on consumer goods has been a struggle after Japan raised sales taxes last year to help pay down a huge national debt.
The rise hammered consumer spending and pushed the economy into a brief recession.
On Friday, the internal affairs ministry said household spending—a broad measure of private consumption—fell 1.3 percent from a year ago, the 13th consecutive month fall.
The drop was a surprise given market expectations that spending would turn up for the first time since Tokyo raised the sales levy in April 2014.
“Consumption has not recovered to the levels before the tax rise,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“With the labor force decreasing, there should be upward pressure on wages and then inflation if the economy grows.
“Japan is now standing at a crossroads as to whether this cycle starts or not.”
Core inflation, excluding volatile fresh food prices, hit 0.3 percent on-year, beating market expectations for a 0.2 percent rise but still way off the Bank of Japan’s 2.0 percent target.
Excluding the lingering effect of last year’s tax rise, inflation was around zero.
Analysts say central bank policymakers will almost certainly be forced to expand the BoJ’s monetary easing scheme to jack up prices and counter a downturn in the economy.
Sustained inflation is a cornerstone of Prime Minister Shinzo Abe’s drive to reverse years of falling or stagnant prices.
Japan’s factory output turned up 1.0 percent on-month in April, reversing a drop in the previous month, while the unemployment rate edged to an 18-year low of 3.3 percent last month.
“Unfortunately . . . a tighter labor market is no guarantee for stronger price pressure,” Marcel Thieliant from Capital Economics said in a commentary.
“The rise in industrial production in April did not reverse the sharp falls in prior months,” he added.
The BoJ last week refrained from expanding its annual 80 trillion yen ($646 billion) asset-buying program as its chief Haruhiko Kuroda said the economy was on the mend.
Kuroda has been forced to push back a timeline for hitting the inflation target, although he insists that healthy price rises are around the corner—despite doubts among a growing number of economists.
“Inflation will remain subdued for a while—the BoJ will have to expand policy again,” Tomo Kinoshita, an economist at Nomura, told Bloomberg News.