Japan's long growth run faces turning point as wages and spending fall

Japan Times -- Apr 07

Japan’s longest run of economic expansion since the 1980s asset bubble may be entering a turning point, with data out on Friday suggesting consumption will fail to drive growth if trade frictions undermine exports.

Household spending shrank 0.9 percent in February from a year earlier — the biggest drop since a 1.4 percent fall in April last year — while inflation-adjusted real wages fell for a third straight month in February, undercutting consumer buying power.

A slowdown in consumption would be an additional headache for policymakers, who fret that the yen’s recent rises and fears of a trade war could hurt the export-reliant economy.

“External demand and consumption aren’t very strong, so economic growth may have ground to a halt in the first quarter,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“The strong yen could hurt exporters’ earnings. That’s a concern because companies won’t raise wages, which means consumption won’t fire up.”

Unusually cold weather kept consumers at home and heavy snow led to a spike in vegetable prices, which discouraged households from spending on non-necessities in February, analysts say.

The drop in spending confounded a median market forecast for a 0.3 percent gain and followed a 1.9 percent rise in January.