MNI BRIEF: BOJ Concerned Savings May Drive Weaker Consumption

Bank of Japan officials are concerned higher savings rates among households could negatively impact Japan's consumption recovery, as negative real wage growth continues and demand weakens, MNI understands.

Weaker private consumption will lower corporate profits and make it harder for businesses to raise prices and wages, which will weaken the second force of inflationary pressure should private consumption lose momentum, BOJ officials warn.

However, they do not expect expect private consumption to derail from a recovery trend immediately as slowing pass-through of cost increases and hope for wage hikes support spending.

Bank officials also remain skeptical over weaker spending by pensioners who will not benefit from wage hikes and their impact on overall spending as the share of pensioners’ consumption increases.

The government’s outlook on consumer sentiment remained firm, indicating private consumption will not fall immediately, but bank officials are paying attention to how it has evolved following the earthquake on Jan. 1.

The BOJ board will strongly consider exiting its negative rates policy when it meets in April should wage hikes continue to gain momentum. (See MNI POLICY: BOJ Mulls Framework Post Likely April Rate Liftoff)