Japan Households Cut Spending From April Level Amid Restrictions

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Japanese households cut spending in May compared with the prior month, signaling that consumers are likely to remain a weak link in the recovery until vaccines are more widely distributed and virus restrictions are more fully lifted.

Spending dropped 2.1% from April's level on a seasonally adjusted basis, with consumers cutting back on clothing and transportation amid the country's third virus emergency, a report from the ministry of internal affairs showed Tuesday.

The data underscore the continued sensitivity of consumers to Japan's on-again-off-again restrictions to contain the virus. The latest round of restrictions, calling on bars and restaurants to close early, began in late April and still drag on as the country prepares to host the Tokyo Olympics later this month.

A separate report showed real wages increased for a fourth month compared with 2020's dismal levels. Although pay gains could help support consumption once public safety improves, for now households are spending far less than before the pandemic, with a ministry official noting that outlays in May were down 6.5% compared the same month in 2019.

Key Insights

“June onward should see a recovery, but it's difficult to see consumption recovering all that was lost quite yet,” said economist Takeshi Minami at Norinchukin Research Institute.
Despite the weakness, Minami said he sees consumers helping the economy eke out growth in the second quarter compared with the first three months of the year when Japan was grappling with yet another virus emergency and consumption was even worse than it is now.
Japanese consumers, who account for more than half of the economy, still face significant headwinds. Restrictions on bars and restaurants remain in place even after the latest state of emergency was lifted last month, a more contagious variant of the virus is spreading in Tokyo, and case numbers are on the uptick in the capital.
Longer-term, a widening vaccine drive should allow the economy to open up more fully in the second half of the year. People are likely to splash out on services once life returns more fully to normal.

What Bloomberg Economics Says...
“The decline in Japan's household in May from the previous month underlines weakness in consumption that probably dragged on the economy in the second quarter. In year-on-year terms, spending came in a touch above expectations, but the increase was down from April and also reflected a boost from a low base.”
--Yuki Masujima, economist
To read the full report, click here.

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Household spending rose by double-digits compared with 2020's numbers, but the gains are a reflection of last year's weakness more than anything else.
Compared with April, households cut outlays on clothing by 15% and spent 12% less on transportation and communications.
Cash earnings for Japan's workers climbed 2% in May adjusted for inflation.