Japan's household consumption has declined for nine straight months, according to data released Friday by the country's Ministry of Internal Affairs and Communications, as persistent inflation erodes purchasing power and consumers remain cautious despite continued wage growth.
Inflation-adjusted real household spending fell 3.1% year-on-year in August, a smaller decline than the 3.6% drop economists had expected. On a seasonally adjusted basis, spending edged up 0.1% from the previous month.
The latest signs of weak consumption complicate the Bank of Japan's policy communication, even as authorities still plan to keep raising interest rates. Real inflation-adjusted wages have risen for consecutive months this year, yet they have failed to revive spending. In an aging society, a growing number of retirees cannot benefit from wage increases.
Bank of Japan Governor Kazuo Ueda has repeatedly warned of upside inflation risks, and many market participants are betting the central bank will raise its benchmark rate again by the end of the year. Friday's data showed that inflation and domestic demand are not rising in tandem. Raising rates too quickly or by too much could weigh on the economy.
Spending on education and entertainment, food, home repairs, rent, and utilities all declined, dragging down the overall consumption index. The only category to post growth was transportation and communication, with car-related spending rising slightly.
The drop in education spending and a 5.2% year-on-year fall in utility costs reflect the effects of a series of cost-of-living measures introduced by Prime Minister Sanae Takaichi, including subsidies. The prime minister plans to cut the consumption tax on food to 1% from the current 8% starting next April to further ease inflation's burden on households, and has pledged to restore the original rate after two years.