TOKYO – Japan’s household spending in October fell by 5.1 percent year-on-year basis, according to data published by the government on Friday, after a hike in the country’s consumption tax.
In October, the average spending of Japanese households consisting two or more people came down to 279,671 yen ($2,572), according to data published by the Ministry of Internal Affairs and Communications.
Analysts attribute this fall to a hike in the country’s consumption tax from 8 percent to 10 percent in October, as well as the effect of several typhoons that hit Japan during that period.
In September, the household spending had seen a 9.5 percent jump year-on-year due to an increased demand just before the hike in the consumption tax, which excluded fresh food products and other basic necessities, and which would make products more expensive.
The drop recorded in October was the first in 11 months, and the largest since March 2016, according to the official data.
The data confirmed fears concerning a possible negative impact of the fiscal measure on the third largest world economy, already affected by a slowdown due to persistent weakness in domestic consumption – the main contributor to Japan’s GDP – and decline in exports.
On Thursday, the Japanese government approved its first stimulus package in three years, worth 26 trillion yen (nearly $240 billion), aimed at mitigating the negative effects of the tax hike and to prevent a sharp drop in public spending after the Tokyo 2020 Olympic Games.
The package is also aimed at supporting reconstruction work after the natural disasters that struck the country recently, offering protection against the negative effects of a hike in value added tax that was implemented on Oct. 1 and checking the effects of a possible slowdown in the world economy.
It includes government measures to boost the export of agricultural products before a bilateral trade deal between Japan and the United States comes into effect early next year.
This is the first economic stimulus in three years, after a 28.1 trillion yen package in August 2016.
However, some economists have said the package could slow down efforts to improve the fiscal health of the country, which is burdened with the largest public debt among the industrial nations.
The stimulus package would be funded through an additional budget for the ongoing financial year 2019-20, with the budget draft set to be prepared in December.