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Economy

Japan's household spending posts fastest decline in 3 1/2 years

Drop follows sales tax increase and powerful typhoon

An electronic store in Tokyo before the sales tax hike: Consumers have tightened up since the levy hit 10%.

TOKYO (Reuters) -- Japan's household spending fell at the fastest pace in over 3-1/2-years in October as consumers cut their purchases following a sales tax hike and as natural disasters disrupted business.

Household spending dropped 5.1% in October from a year earlier, government data showed on Friday, the biggest fall since March 2016 when spending fell 5.3% and weaker than the median forecast for a 3.0% decline.

That marked a sharp reversal from the 9.5% jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 tax hike from 8% to 10%.

Compared with the previous month, household spending fell 11.5% in October, the fastest drop since April 2014, when Japan raised the sale tax from 5% to 8%.

The month-on-month figure compared with the median forecast for a 9.8% decline.

Analysts also said a powerful typhoon in October, which lashed wide swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Separate data showed real wages adjusted for inflation edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

Japan's cabinet approved a $122 billion fiscal package on Thursday to support stalling growth in the world's third-largest economy amid offshore risks and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper than expected slowdown.

The economy grew an annualised 0.2% in the third quarter, the weakest pace in a year, as the U.S.-China trade war and soft global demand knocked exports.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.

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