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Trend Needle Points North Despite Recent Pullback


Trend Needle Points North Despite Recent Pullback


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MNI INSIGHT: BOJ Puzzled By Weak Spending Bounce Post-Tax Hike

MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan is puzzled by weak consumer spending
against a backdrop of a tight labour market and recovering confidence levels,
with concern growing there may be a repeat of the sluggish recovery seen
following the 2014 sales tax hike, MNI understands.
     Although officials at the Bank still expect private consumption to pick up
in the first quarter, weak spending data in December is giving some pause for
thought, offering no sign yet of a recovery as weak consumer spending extends to
a third month after the October 1 sales tax hike.
     The weak bounce back is a reminder for BOJ economists that the central bank
had to cut rates in the wake a slow consumer recovery after the 2014 sales tax
     The BOJ had similarly expected private spending to rebound after that tax
hike, but the recovery was slow and a concern there would be a loss of momentum
towards higher prices pushed the Board to ease policy.
     The Bank sees and recovery in spending following last year's sales tax hike
as lacking momentum, with sales of automobiles particularly weak. Auto sales
fell 9.5% in December, a third straight drop after falling 14.6% in November and
26.4% in October.
     Despite consumer confidence recovering in December for a third consecutive
month, rising 0.4 points to 39.1, there has been little sign of a pick-up in
household spending, which fell 5.1% in October and 2% in November. Retail sales
fell 2.1% in November after falling 7% in October, although an economy watcher
survey released Jan 14 suggests there may be a modest uptick in December.
     Some Bank officials believe weaker income levels following the government's
latest work place reforms could have weighed on weaker consumer spending.
     The BOJ's Consumption Activity Index rose 2.7% on an adjusted basis in
November, coming after a downwardly revised drop of 9.1% in October, although
the uptick did little to assuage concern at the Bank as it did little to offset
the immediate post-tax hike fall.
     Perhaps helping explain the sluggish spending data was the government wage
data that continued to show that overtime working hours and overtime pay have
continued to fall, keeping base wage hikes weak.
     Overtime pay fell for a third straight month in November, down 1.9% y/y.
Bonuses and other special pay fell 3.9% y/y after falling 8.5% fall in October.
Against that, base wages rose 0.2% y/y in November, the fifth straight rise
after October's 0.2% gain.
     Data showed that the work place reform is pushing the fall in overtime
working hours, which is weighing on overtime pay and impeding base wage hikes.
The Abe government has pushed companies to perform work place reforms to improv
labour productivity through innovation, but it is having a detrimental impact
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
[TOPICS: MMJBJI,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 |

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