BOJ’s new index shows modest pickup in Japan consumption

The Bank of Japan’s new index showed on Tuesday that private consumption rose 0.8 percent in April from the previous month, underscoring its view that household spending is holding up on expectations of a slow but steady increase in wages.

The central bank began releasing the new index to get a more comprehensive view of private consumption, which makes up 60 percent of Japan’s gross domestic product (GDP) and holds the key to its policy decisions.

Household spending remained weak in the first quarter and recent surveys have shown a mixed picture on the outlook.

Department store sales slumped in April on weak demand for luxury items. But supermarket and convenience store sales were firm in a sign that shoppers, while being selective, are not making across-the-board spending cuts.

The government’s existing data on household spending, which is used to calculate Japan’s GDP, showed a 0.4 percent fall in April from a year earlier, much less than a median market forecast for a 1.4 percent decline.

The BOJ introduced its own consumption index amid growing criticism from lawmakers and analysts that the government’s data, compiled from a survey of just 9,000 households, was distorted because of its small sample base.

A pick-up in consumption is crucial to the success of the central bank’s massive monetary stimulus program aimed at accelerating inflation, now ground to a halt, to 2 percent.

Some companies have recently cut prices to lure consumers after spending slumped. The BOJ is hoping that consumption will rebound so that companies can raise prices of their goods again.

The new BOJ index measures the strength of consumer spending based on supply-side data, such as retail sales and surveys on corporate business activity, and would have a strong correlation to consumer sentiment surveys, according to the central bank.

Source: Reuters