Japanese Household and Wages Fetch Decent Gains

Japan’s household spending increased slightly and higher bonus payments lifted wages in December, though the underlying trends in these two metrics exhibited only modest improvement and pointed to a difficult year for the economy as risk to growth increases.

Recent controversies about faulty polling methods were used to compile monthly wage data have also cast doubt on whether the benefits of Japan’s economic recovery have broadened as much as Prime Minister Shinzo Abe claims.

In December, household spending was 0.1 percent higher on year-over-year basis, according to data from the government. It was still lower than the average market forecast for a 0.8 percent increase, though this was the first improvement in four month.

In a separate data, inflation-adjusted real wages gained 1.4 percent in December, but the gains were mostly due to an increase in winter bonuses.  Regular pay, which accounts for the bulk of monthly wages, increased at a slower 0.9 percent pace in the year to December, from a 1.3 percent increase in November.

Many analysts see a gloomy outlook as slowing global demand, trade protectionism, and volatile markets are key reasons why companies are putting off further wage hikes.

“When you look at the October-December quarter, consumption fared fairly well and will probably contribute positively to gross domestic product (GDP) growth,” said a chief economist. “But companies may not raise wages much this year because there is so much uncertainty on the global economy. There is a small but likely chance the economy may contract again in January to March.”

Controversies in Data

According to analysts, consumption held up in the last months of last year, with slumping gasoline prices and vegetables pushing up households’ buying power.

However, it’s still uncertain whether there will be a enough support in consumption to offset the weakness in exports, as slowing global demand and US-China trade frictions damage business sentiment.

December exports slipped the most in over two years, increasing the chances of a recession in the country in 2019. Manufacturing growth also stalled in January, with businesses cutting back production.

Increasing external risks add to the challenge facing the Bank of Japan, which is left with diminished policy ammunition to fight another recession after years of heavy money printing failed to catapult inflation to its long-standing 2 percent target.

“Consumption may lose momentum this year as household income isn’t rising quickly enough,”  said a chief economist from the National Research Institute.