The worst is over for employment and income conditions in Japan and while those conditions may not robustly improve any time soon, household consumption is unlikely to collapse when the fiscal stimulus ends, economists at BNP Paribas said in a report.
Household spending has been recovering since the June quarter of 2009, thanks largely to the effects of fiscal stimulus. Spending revived with a solid 1.2% quarter-on-quarter gain in the June quarter and followed it up with 0.9% growth in the September quarter.
BNP Paribas believes that the recovery lost further momentum in the December quarter, with consumption forecast to grow just 0.2%. A sector breakdown should reveal the driver of consumption in the fourth quarter is again durable goods - the area benefitting most from government stimulus.
The economists said the impact of stimulus on consumer spending was waning. Car sales, the recovery of which has been boosted by the government's subsidies for buying eco-friendly models, likely grew 3% in the December quarter, well below the robust 17.4% growth in the September quarter. The stimulus driven sales of household appliances is also likely to have stalled in the December quarter.
Analyzing those sectors which are not influenced by stimulus shows that the tone remains weak. Sales in department stores are forecast to drop 4.8% in the fourth quarter, accelerating sharply from the third quarter's 0.3% fall, while sales of food & beverages are tipped to fall 2%.
The fundamental reason for the weak consumption tone, according to the economists, is the dire state of households' income conditions. Most households realize that the drop in income from 2008 is permanent, and not just the result of a cyclical shock, and so households have lowered their spending levels to reflect this.
Nevertheless, it is not all doom and gloom for household income conditions, with overtime earnings on the rise and the downturn in scheduled earnings easing. With respect to employment, the economists noted that the jobs market was stabilizing, with the forward indicator of the job offer ratio posting improvement for four straight months.
In all, the economists said that will a full fledged recovery may be far off, household consumption is unlikely to completely collapse when the effects of fiscal stimulus eventually end.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.