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Japan’s Household Spending Fell with a Drop in Income

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Dec. 31 2015, Updated 7:05 p.m. ET

Household income declined 1.8% in November

According to the Ministry of Internal Affairs & Communications, the Japanese average monthly household income stood at 425.7 thousand yen. Household income fell 1.8% YoY (year-over-year) in November, despite rises in new orders and production levels. This indicates that manufacturers remain cautious about employment and wage growth due to the sluggish overall economic climate.

The WisdomTree Japan Hedged Equity Fund (DXJ) and the iShares MSCI Japan ETF (EWJ) fell 1.3% and 1.2%, respectively on December 24. Toyota Motor Corporation (TM), Mitsubishi UFJ Financial Group (MTU), and SoftBank Group Corporation (SFTBY) fell 1.1%, 0.16%, and 0.43%, respectively, on December 24.

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Household spending fell 2.9% in November

Consumer spending accounts for about 61.1% of the Japanese GDP (gross domestic product). The Japanese average monthly consumption expenditures per household came in at 273.3 thousand yen in November. Household spending fell 2.9% in November, as compared to a drop of 2.4% in October 2015.

The food basket accounts for about 26% of total household expenses. The further decline in November was mainly led by a 1% decrease in the purchase of food items. Fuel, light, and water spending fell by 1.1%, and furniture and household utensils spending fell by 2.8%. The only components that rose in November were housing and education, which collectively account for 10.2% of total spending. These sectors saw rises in spending of 18.4% and 0.4%, respectively.

In November, both household income and expenditures fell. This shows that both manufacturers and consumers are less optimistic about the economy. However, the stimulus extended by the Bank of Japan to infuse growth may build confidence in the economy going forward.

In the next part of this series, we’ll explore how low household income is related to employment growth.

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