Will household spending continue trending up?ーNHK WORLD-JAPAN NEWS

Key Concepts

• Household Spending in Japan: Focus on consumer expenditure patterns.
• Inflation-Adjusted Basis: Measuring spending after accounting for price increases.
• Disposable Income: Income remaining after taxes and essential expenses.
• Real Wages: Wages adjusted for inflation, reflecting purchasing power.
• Food Expenditures: Spending on food items.
• Rice Expenditures: Specific focus on spending on rice.
• Wage Hikes: Increases in nominal wages.
• Consumer Selectivity: Consumers becoming more discerning about spending.

Household Spending in Japan: Latest Trends and Future Outlook

This edition of Bispicks focuses on the upcoming release of household spending figures for Japan, due on Friday. The previous survey for September revealed a positive trend: households of two or more people increased their spending compared to the previous year, even after accounting for inflation. This marks the fifth consecutive month of such an increase.

Key Spending Patterns Observed

• Increased Spending on Recreation: Households are allocating more funds towards recreational activities, including both domestic and international travel.
• Decreased Spending on Food: Conversely, spending on food has declined for the fourth consecutive month, a trend attributed to rising prices. Consumers are becoming more selective about where they spend and where they save, as noted by Kugat Naoko, Senior Analyst at NLI Research Institute.

Factors Influencing Consumer Behavior

• Disposable Income Growth: Some households have experienced a gradual increase in their disposable income over the past few years, driven by wage hikes. This could potentially lead to a rise in overall consumption.
• Shifting Priorities: While consumers have been closely monitoring spending on daily necessities, there's a possibility they may become more relaxed in this area and more willing to spend on entertainment.

Focus Areas for Upcoming Data

The key indicators to watch in the upcoming October figures are:

• Continuation of Mild Spending Recovery: Whether the positive trend in household spending has persisted.
• Food Expenditures Uptick: An examination of whether spending on food shows an increase, given its recent decline due to selective spending.

The Significance of Rice Expenditures

Rice is highlighted as a specific food item of particular interest. Elevated rice prices have led Japanese households to either reduce their purchases or opt for cheaper alternatives. Spending on rice has seen year-on-year declines for most months since last fall, but it finally registered an increase in September.

• Impact on Overall Spending: Fluctuations in rice expenditures have a significant impact on total household spending.
• September's Rebound: The increase in September spending on rice was likely a rebound from a substantial drop recorded a year prior.
• Future Clarity: Data for October and November will be crucial in determining if this September increase signifies a sustained trend, potentially influenced by new crop availability or other factors.

The Role of Real Wages

The central argument presented is that the key to sustained robust consumer spending lies in real wages.

• Current Situation: Despite nominal wage increases, these have not been sufficient to offset inflation, resulting in real wages remaining in negative territory.
• Projected Outlook: Researchers at NLI project that wage growth before inflation will be around 2%, while inflation is expected to fall below this level in early 2026. This forecast suggests that real wages are anticipated to turn positive next year.

Conclusion and Key Takeaways

The upcoming data on household spending, particularly food and rice expenditures, alongside wage data, will serve as crucial indicators for the Japanese economy in the coming year. The sustainability of consumer spending hinges on real wages entering and remaining in positive territory. The Bispicks team will continue to monitor these figures closely.