Japan's spending slump eases as economy reopens, COVID-19 clouds outlook

TOKYO (Reuters) - Japan’s household spending fell at a much slower pace in June than in the previous month as the economy re-opened from lockdown measures to contain the coronavirus pandemic, offering some hope of a moderate recovery later this year.

FILE PHOTO: Shoppers walk into Japan's supermarket group Aeon's shopping mall as the mall reopens amid the coronavirus disease (COVID-19) outbreak in Chiba, Japan May 28, 2020. REUTERS/Kim Kyung-Hoon

But the recovery was driven largely by the government’s blanket cash payouts to households, which were spent on big ticket items like television sets, personal computers and sofas.

That cast some doubt on the sustainability of the rebound, particuarly as rising COVID-19 infections nationwide have forced the government to request citizens hold off on unnecessary travel and work from home as much as possible.

“The rebound in consumption was stronger than expected, so we may see the economy pick up faster than initially thought,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“But renewed rises in infection numbers are worrying. It’s too early to be optimistic on the outlook.”

Household spending in June declined 1.2% from a year earlier, government data showed on Friday, less than a median market forecast for a 7.5% drop.

It followed a record 16.2% drop in May, when consumers were still heeding authorities’ calls to stay home to contain the pandemic. Those emergency steps were lifted in late May.

Compared with the previous month, household spending jumped 13.0% in June to mark the biggest increase on record as the government’s cash payouts offset a steady drop in regular wages.

The payouts helped push spending on air conditioners up by nearly 30% in June, television sets by 83%, and tables and sofas by two-fold, the data showed.

But inflation-adjusted real wages fell for the fourth consecutive month in June, clouding the outlook for an economy bracing for a prolonged impact from the pandemic.

The fallout from the pandemic has pushed Japan deeper into recession, hitting an economy already reeling from the damage to consumption and exports from last year’s tax hike and slumping overseas demand.

Reporting by Leika Kihara; additional reporting by Daniel Leussink; editing by Jane Wardell