Japan's household spending fell at the fastest pace on record in May as consumers heeded the authorities' calls to stay home to contain the coronavirus pandemic, pushing the world's third-largest economy deeper into decline.
The large spending drop will add to growing pressure on policymakers to ramp up moves to restore confidence among businesses and in particular consumers.
Household spending slumped 16.2 per cent in May from a year earlier, government data showed on Tuesday (July 7), falling at the quickest pace since comparable data became available in 2001.The drop, which was larger than a median market forecast for a 12.2 per cent fall, extended an 11.1 per cent decline in April.
A spending recovery is expected to be slow and fragile as households remain reluctant to loosen the purse strings even after a nationwide state of emergency was lifted in May.
"The pace of recovery is worrying," said Atsushi Takeda, chief economist at Itochu Economic Research Institute.
"Even though the government has rolled out policy measures, it's difficult for their impact to come out quickly."
Still, the Bank of Japan is expected to maintain its view in its quarterly report next week that the economy will gradually recover later this year.
Tuesday's data showed large cuts in spending on hotels, transportation and eating out as people stayed at home.
On the other hand, stay-home policies boosted spending on pork and beef, alcohol and sanitary goods like face masks and paper towels.
Last year's unprecedented 10-day Golden Week holiday to celebrate the enthronement of then Crown Prince Naruhito made the drop in spending more pronounced, partly due to larger than usual spending on tourism in 2019, a government official said.
Overall, the outlook for household spending for the months ahead is dim due to an anticipated rise in job losses, especially among service-sector firms, which is weighing on sentiment.
Separate data on Tuesday showed May inflation-adjusted real wages dropped at the fastest pace since June 2015, adding to signs of stress in the labour market.
Policymakers hope a pickup in domestic demand will be strong enough to bring about an economic recovery, as long as the country is able to avert a big second wave of coronavirus infections.
The government already compiled two spending packages worth a combined US$2.2 trillion to offset the hit from the pandemic, which included cash handouts of 100,000 yen (S$1,300) per citizen.
But spending could take a larger hit going forward if the worsening business outlook forces firms to slash workers' bonuses, especially in winter, or lay off more workers.
"That, in turn, could cause income levels to drop further," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"I think a phase of worsening consumption will strengthen in the second half of the year."