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Japan’s Household Spending Slows as Inflation Bites

Japanese household spending shrank for the second consecutive month in December as inflation took its toll, despite strong private consumption as the country reopened after the COVID-19 pandemic.

According to a report, household spending fell 1.3% YoY in December, surpassing economists’ expectations for a 0.2% decline after a 1.2% drop in November. The monthly spending decrease was 2.1%, exceeding predictions for a 0.3% increase and marking the largest decline since a 2.8% drop in February 2022.

Private consumption, which makes up over half of Japan’s gross domestic product (GDP), has been supporting the economy since restrictions to contain the pandemic were lifted last year. Despite the boost, real wages rose for the first time in nine months due to larger bonuses, indicating that the country may be able to sustain its post-pandemic growth and reduce the need for massive monetary stimulus.

The Japanese government lifted all domestic restrictions in March and relaxed border controls in October, boosting the tourism sector with the support of a weak yen. However, the high consumer inflation, hitting a 41-year high, has overshadowed the domestic spending.

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