According to Japanese retailers, consumer spending is alive and well. Statistics, however, give a different picture. Officials have cut earnings forecasts and are now warning of weak consumer spending, a key growth engine for Japan at a time when exports and factory output have been hedging.
Household spending in August was up 2.9 per cent, the first year-on-year rise in three months. But this number is deceiving and does not reflect an accurate picture of Japanese consumption which has been restrained and points to additional reasons for the central bank policy meeting on Oct. 30 where the government plans to develop new economic policies before the year-end.
Wages Kept Low
According to analysts, the main factor slowing down the economy is that wages are not rising fast enough to keep pace with rising food prices and consumers are being forced to cut back on other goods in order to compensate.
Real wages, adjusted for inflation, came in 0.5 percent higher in July from a year earlier, the first gain in 27 months. But wage growth slowed to 0.2 percent in August and government data showed that even summer bonuses were lower than last year. Household spending is a component of gross domestic product, and the low numbers is one indication that Japan's economy contracted in the second quarter.
Overall inflation remained lukewarm with June coming in up only 0.1 percent from a year ago, well short of the Bank of Japan's 2.0 percent target.
Too Many Low Paying Jobs
Another problem cited for a dragging economy is the overabundance of low paying jobs. According to the Japanese National Tax Bureau, last year, part-time and irregular workers comprised a record 37.4 percent of the workforce last year, with irregular workers earning on average less than half of what regular full-time workers earn.
Additionally, the government is planning to raise the nationwide sales tax again to 10 percent in 2017 from 8 percent and households are already tightening their purses. Japan hiked sales taxes last April in an effort to help pay down a huge national debt and economists are pointing to the tax hike, Japan's first in 17 years, as having stopped consumer spending in its track.
In short, there seems to be quite a bit of uncertainty about consumer spending and talk of another sales tax hike on the way serves to reinforce consumer uneasiness. Economists are convinced that the Bank of Japan will almost certainly be forced to expand its already huge monetary easing scheme to bolster prices and fuel growth in the world's third largest economy.