Real Wages Decline Amid Consumption Stagnation... Bank of Japan Says "Economic Outlook Is Gloomy"

Overlapping Adverse Factors Including Yen Depreciation... Burden of Rising Import Prices

On July 21st, pedestrians are crossing a crosswalk in downtown Tokyo, Japan. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Although Japan is maintaining an ultra-low interest rate policy to stimulate the economy, consumption remains sluggish and real wages are declining.

According to Bloomberg and others on the 6th, Japan's Ministry of Internal Affairs and Communications announced that household spending in Japan increased by 3.4% year-on-year in July. Despite continuing a two-month growth trend compared to the same month last year amid the spread of COVID-19, it fell short of the market forecast of 4.6% compiled by Bloomberg. It also decreased by 1.4% compared to the previous month.

The Japanese government explained that consumers reduced store visits due to the spread of COVID-19.

Meanwhile, Japan's Consumer Price Index (CPI, excluding fresh food) rose 2.4% year-on-year in July, marking the largest increase in 7 years and 7 months. Considering this inflation, real wages in July decreased by 1.3% year-on-year. With real wages declining for four consecutive months, household purchasing power has been weakened.

Japan's Ministry of Health, Labour and Welfare explained that nominal wages increased by 1.8% compared to the same period last year, but the growth rate has slowed. Bloomberg economist Masujima Yuki said, "With incomes (real) decreasing amid intensifying inflation, household spending declined in July, which will burden the economic recovery in the third quarter," and predicted, "The Bank of Japan's monetary easing stance will be strengthened."

The exchange rate is also a burden. The yen's value against the dollar hit its lowest level in 24 years, raising import prices for energy and food, which is also suppressing consumption. Some expect that the core CPI, excluding agricultural product prices, could record a rise in the 3% range in the fourth quarter of this year.

This content was produced with the assistance of AI translation services.