Key Points
- Japanese household spending unexpectedly fell by 3.0% year on year in October. The drop surprised experts, who had forecast a 1.0% rise in spending.
- The weak data complicates the Bank of Japan’s (BOJ) decision on whether to raise interest rates.
- The BOJ is facing pressure to hike rates to combat high inflation and a weak yen.
- Despite the poor spending numbers, reports indicate a December rate hike is still likely.
Japanese families unexpectedly cut back on spending in October, a worrying sign for the economy that complicates the central bank’s next move. Government data released Friday showed that household spending fell by 3.0% compared to the same time last year. This result shocked economists, who had actually predicted a 1.0% increase.
The month-over-month figures were also weak, with spending dropping 3.5% from September.
This surprise downturn in consumer activity puts the Bank of Japan (BOJ) in a tough spot. The central bank is weighing whether to raise interest rates at its upcoming December meeting or to wait until next year. The decision is a difficult balancing act.
On one hand, the BOJ is facing intense pressure to hike rates. Stubbornly high inflation continues to squeeze household budgets, and a weakening yen is making imported goods more expensive. These factors have pushed many on the BOJ’s board to support a rate increase.
On the other hand, this new spending data suggests the economy might be more fragile than previously thought. Raising interest rates makes borrowing more expensive, which could further slow the economy and hurt the very consumers who are already pulling back.
Despite the gloomy spending report, many believe a rate hike is still on the table for December. A recent report suggested that the BOJ is leaning toward an increase and that the government is prepared to accept the decision.
