Japan’s households tighten purse strings as sales tax and typhoon hit

Japan’s households tighten purse strings as sales tax and typhoon hit
Japanese consumers went on a September shopping spree to beat a hike in sales tax. But household spending has slumped in the run-up to Christmas. (AP)
Updated 06 December 2019

Japan’s households tighten purse strings as sales tax and typhoon hit

Japan’s households tighten purse strings as sales tax and typhoon hit
  • Falls in factory output, jobs and retail add to fears of worsening slowdown after Tokyo unveils $122bn stimulus package

TOKYO: Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1 percent in October from a year earlier, government data showed on Friday.

It is the first fall in household spending in 11 months and the biggest fall since March 2016 when spending fell by 5.3 percent. It was also weaker than the median forecast for a 3 percent decline.

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

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March, but such recovery won't be strong enough.”

Household spending fell by 4.6 percent in April 2014 when Japan last raised the sales tax to 8 percent from 5 percent. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5 percent in October, the fastest drop since April 2014, a faster decline than the median 9.8 percent forecast.

Analysts said a powerful typhoon in October, which lashed 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 also showed the weak state of the economy.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, fell a preliminary 5.6 points to 94.8 in October from the previous month, the lowest reading since February 2013, the Cabinet Office said on Friday.

It was also the fastest pace of decline since March 2011, according to the data.

Real wages adjusted for inflation, meanwhile, 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.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth 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 by an annualized 0.2 percent in the third quarter, the weakest pace in a year.

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


American Airlines holds first civilian passenger flight of 737 MAX in nearly two years

Updated 21 sec ago

American Airlines holds first civilian passenger flight of 737 MAX in nearly two years

American Airlines holds first civilian passenger flight of 737 MAX in nearly two years
  • Part of a PR effort by the planemaker and airlines to rehabilitate the jet’s image
  • A smooth return to service for the MAX is seen as critical for Boeing’s reputation and finances
DALLAS: Boeing’s 737 MAX on Wednesday will make its first public demonstration flight with members of the media since being grounded over fatal crashes, as one of its biggest customers, American Airlines, seeks to prove it is safe for passengers.
The flight from the airline’s base in Dallas, Texas, to Tulsa, Oklahoma, comes weeks before the airline’s first commercial flight on Dec. 29, and is part of a PR effort by the planemaker and airlines to rehabilitate the jet’s image following a record 20-month ban.
Boeing said it had no comment on the American flight and that it would not have staff aboard. The planemaker has said that airlines will take a direct role in demonstrating to passengers that the 737 MAX is safe.
Boeing’s best-selling jet was grounded worldwide in March 2019 after two crashes five months apart killed a combined 346 people, marking the industry’s worst safety crisis in decades and a huge setback for US aviation regulatory leadership.
Wednesday’s flight marks the first time anyone besides regulators and industry personnel have flown on the MAX since the grounding. Last month, the US Federal Aviation Administration cleared it to fly. Brazil’s Gol Linhas Aereas Inteligentes is planning a similar high-profile event for the redesigned MAX this month, with cautious hopes to fly its first commercial flights as soon as next week, a representative said.
A smooth return to service for the MAX is seen as critical for Boeing’s reputation and finances.
The US planemaker is bracing for intense publicity from even routine glitches by manning a 24-hour “situation room” to monitor every MAX flight globally, and has briefed some industry commentators on details on the return to service, industry sources said.
Airlines and leasing companies have spent hundreds of billions of dollars buying the latest upgrade of the 737, the world’s most-sold aircraft.
But families of some of the crash victims in Indonesia and Ethiopia have protested the return to service, saying it is premature before a final investigative report on the second crash has been released.
The PR efforts are designed to highlight software and training upgrades which the FAA has said remove any doubt about the plane’s safety.
Boeing toned down its original plans for the plane’s eventual return as the crisis dragged on longer than executives expected, scrapping a high-profile publicity campaign which had included a ceremony in the Seattle area and a tour using an Oman Air 737 MAX, industry sources said.
A Boeing representative declined to comment.
Meanwhile, in a vote of confidence, airlines are stepping in to place orders for the MAX, with Alaska Airlines agreeing to lease extra MAX jets last week, and Ireland’s Ryanair expected to top up MAX orders as early as this week.