By Leika Kihara
TOKYO (Reuters) – Spending by Japanese households slumped unexpectedly in April and consumer inflation came in roughly flat, casting doubt on the central bank’s view that a steady economic recovery will help move inflation toward its ambitious 2 percent target.
Households spent less on leisure and dining out even as the jobless rate fell to a 18-year low, underscoring the challenge of eradicating the sticky “deflationary mindset” that has beset Japan for nearly two decades.
While analysts expect consumption to pick up in coming months, lingering weakness will keep policymakers under pressure to underpin a fragile economic recovery.
“It’s a pretty gloomy number … Consumption may take longer than expected to pick up,” said Taro Saito, director of economic research at NLI Research Institute.
“The mood is good but wages haven’t risen much yet. It might take until around summer for consumption to clearly rebound.”
Household spending fell 1.3 percent in the year to April, data showed on Friday, disappointing analysts who expected a 3.1 percent gain from the same month a year ago – when Japan raised the sales tax.
Spending also fell 5.5 percent from the previous month.
While consumers spent more on food and durable goods, they refrained from eating out partly due to April’s rainy weather.
A weak yen and rising hotel charges also discouraged households from traveling, highlighting the Bank of Japan’s (BOJ) challenges as it tries to accelerate inflation without scaring skittish consumers.
“Many companies posted record profits, wages are increasing and stock prices are rising…but that’s not enough for middle-class consumers to boost spending,” Hiroshi Ohnishi, president of luxury department store operator Isetan Mitsukoshi Holdings <3099.T>, said at an earnings announcement earlier this month.
“We’re not optimistic about the outlook for consumption.”
NOT THAT ROSY
Japan’s core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.3 percent in the year to April, roughly in line with a median market forecast for a 0.2 percent increase, but a long way off the BOJ target.
Analysts expect consumer prices to remain flat or even fall slightly year-on-year until around July or August, due to the effect of a plunge in gasoline prices last year.
The BOJ has said it will look through the effect of oil moves on inflation and count on rising wages to boost consumption and encourage firms to raise prices.
Many analysts say the weak spending data alone won’t force the BOJ into an immediate monetary easing, betting instead that the central bank will wait until the second half of the year while scrutinizing wage and price trends.
Only last week, the BOJ raised its assessment on consumption and said a moderate recovery was under way, signaling that it has no plans to top up stimulus soon.
Behind the optimism was data that showed Japan’s economy expanded at the fastest pace in a year in the first quarter, emerging from a tax hike-induced recession last year.
Still, there is no guarantee that consumers will soon start spending more. Renewed yen falls risk boosting import costs and pushing up grocery prices, offsetting the benefit many households have enjoyed from lower gasoline and fuel prices.
For many average Japanese, the benefits of premier Shinzo Abe’s “Abenomics” stimulus policies have been slow in coming.
“I certainly can’t spend money like the Chinese tourists who come to buy in bulk,” said Yoshiaki Yokoyama, 65, an insurance salesperson in Marunouchi, a business hub in Tokyo.
“Things are okay if you work for a big company or live in a major city. If you work for a small company or live in the countryside, things haven’t improved that much.”
(Additional reporting by Stanley White, Kaori Kaneko and Ritsuko Shimizu; Editing by Chris Gallagher and Eric Meijer)