Japanese household sentiment fell to a six-month low last month, indicating the need for measures to stimulate consumer spending and sustain a recovery from the country’s worst postwar recession.
The confidence index dropped to 37.6 last month from 39.5 in November, the Cabinet Office said yesterday in Tokyo. The government lowered its assessment of the report, describing sentiment as “weak.”
Japanese Finance Minister Naoto Kan yesterday urged lawmakers to pass a proposed ¥7.4 trillion (US$82 billion) extra budget for the current fiscal year, saying it would contribute 0.3 percentage point to economic growth.
Stimulus efforts implemented by the previous administration have begun to fade, signaling it is “far too early” to see a sustained recovery in consumer spending, economist Azusa Kato said.
“The stimulus was the only reason sentiment rallied as much as it did even when incomes were still plunging,” Kato, an economist at BNP Paribas in Tokyo, said before the report. “Sentiment is falling again because those boosts are waning, exposing the underlying weakness of domestic demand.”
Confidence among Japanese has been battered by 18 months of declining wages and unemployment near a postwar high.
A dearth of spending has caused consumer prices to decline for nine months as retailers discount products to attract customers.
The consumer confidence report, which also tracks households’ price expectations, showed that a growing number of consumers see deflation becoming more entrenched.
The portion of people expecting prices to fall exceeded those who see goods becoming more expensive for the first time since the survey began in April 2004. Thirty-two percent of consumers said prices would be lower a year from now, compared with 29 percent of those who see costs increasing.
Kan said yesterday that the economy was at risk of sliding back into a recession, stressing the need for parliament to pass the extra stimulus steps unveiled by Japanese Prime Minister Yukio Hatoyama last month.
“The economy is picking up, but it lacks strength for a self-sustained recovery,” Kan said.
The stimulus plan includes extending incentives introduced by the previous government to purchase environment-friendly products.
Not all analysts agree households will cut back amid signs of improvement in the job market.
The job-to-applicant ratio rose in November for a third month to 0.45, meaning there are 45 positions for every 100 candidates.
Manufacturers increased workers’ overtime hours for an eighth month as a jump in factory orders lifted labor demand.
Julian Jessop, chief international economist at Capital Economics Ltd in London, projects consumer spending will gain 1.8 percent this year.
“The purpose of the fiscal stimulus was to kick-start the economy and to stabilize the labor market. In that sense, it succeeded,” Jessop said. “We’re forecasting that consumer spending recovers its losses from the last two years.”
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