Japan’s household spending declines, economy to contract

Household spending in Japan dropped in September, intensifying expectations of an economic contraction in the third quarter. The decline came as consumers remained wary of the COVID-19’s impact.

Government data on Friday showed spending shed 1.9% year-on-year in September, lower than August’s 3.0% decline. September’s reading was also better than economists’ forecast of a 3.9% drop.

In seasonally adjusted month-on-month terms, spending surged 5.0% in September, touching its first increase in five months. It also outperformed estimates of a 2.8% growth.

Masato Koike, senior economist at Dai-ichi Life Research Institute, said service spending like entertainment and education caught up in goods spending’s upward trend following an improvement in the coronavirus situation.

Virus cases in the country subsided in September, pushing the government to ease some of its COVID-19 restrictions by end-September. However, Tokyo and other heavily populated cities had limited restaurant hours and a cap on large-scale events until late October.

Several analysts expected the economy to record a 0.8% annualized contraction in the third quarter.