Japan posts robust household spending, jobs data — but inflation stays stubbornly low
Tokyo — Japanese household spending hit its highest for two years in June as unemployment fell and job availability reached a 43-year peak, official figures showed, but inflation gave little sign of getting much closer to the Bank of Japan’s price target.
Indicating that the tightening labour market has yet to fuel inflation, core consumer price gains held steady in June, government data showed on Friday, undermining the Bank of Japan’s arguments that tightness in labour markets will force companies to raise wages and prices soon.
The data also reinforced convictions that the central bank will lag behind other major central banks in pulling back its massive stimulus.
A summary of opinions from the Bank of Japan’s July 19-20 meeting, also published on Friday, said the main reason inflation had been slow to pick up was low commodity prices and weak consumer spending — a factor Friday’s data suggests may be changing.
At that meeting, the central bank left monetary policy steady but once again delayed the timing for hitting its price goal, as stagnant wages and disappointing private consumption have hindered hoped-for price gains since it launched a massive stimulus drive in 2013.
Given Friday’s data, optimism on consumption and consumer prices could start to spread, but many economists would argue that the Bank of Japan’s revised timing of around fiscal 2019 for meeting its 2% inflation target remains unrealistic.
"The key point is that inflation is set to remain well below the Bank of Japan’s lofty forecasts even after it lowered them in its latest outlook report," Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a report.
"Policy tightening remains a long way off."
Steady growth, weak inflation
Japan’s economy expanded at an annualised 1% at the start of this year, posting a fifth straight quarter of growth on robust exports and a pick-up in private consumption.
News that household spending rose annual 2.3% in the year to June was an encouraging sign for private consumption, which makes up about 60% of the economy.
It handily beat economists’ median forecast for a 0.6% gain, posting the first annual increase in 16 months and the biggest year-on-year gain since August 2015.
Retail sales also grew 2.1% in the year to June, separate data showed.
Firmer consumption data suggest the tightening job market is gradually helping to raise wages and household incomes, which in turn would stimulate consumer spending.
The jobless rate fell to 2.8% in June, and job availability rose to a very tight 1.51 jobs available per applicant, up for the fourth straight month and the highest reading since February 1974.
Still, Japan’s consumer price growth remains stubbornly weak because of companies’ wariness about raising prices for fear of losing cost-sensitive customers, accentuating the challenge facing the Bank of Japan in accelerating inflation towards its 2% target.
"Strengthening of both external and domestic demand helps tighten the labour market, which will push up wages and prices," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"I think wages and prices are set to rise when companies’ efforts to streamline operations run their course, and it could be possible that the 2% inflation can be met around 2020."
Domestic demand holds the key to sustained expansion as net exports — or exports minus imports — likely trimmed gross domestic product growth in the April-June period, analysts say.
"The economy likely grew at an annualised rate above 2% in the April-June quarter backed by domestic demand — private consumption, capex, inventory and public investment — even though net exports probably shaved off growth somewhat," Minami said.