As per the data released by the Statistics Bureau of Japan, in December, Japan’s household spending climbed by 2.7% annually in real terms, significantly outpacing economists’ expectations from a Reuters poll, which predicted a 0.2% rise.
The figure marks the first surge since July 2024 and could potentially set the stage for another interest rate hike by the Bank of Japan (BOJ).
Japan’s average household expenditure stood at 352,633 yen ($2,332), reflecting a 7% increase in nominal terms compared to the prior year. Meanwhile, the average household monthly income reached 1,179,259 yen, marking a 7.2% nominal rise and a 2.9% real-term gain year on year.
Following this data release, the Nikkei 225 index dipped 0.44%, while the yen appreciated by 0.18% to 151.19.
The BOJ, last month, raised its interest rates by 25 basis points to 0.5%, reaching a level not seen since 2008. This move is part of the central bank’s strategy to normalize monetary policy in response to ongoing inflation and strengthening wage growth.
BOJ board member Naoki Tamura remarked on Thursday that elevating short-term interest rates to at least around 1% by the latter half of fiscal year 2025, which concludes on March 31, 2026, is necessary.
LSEG’s estimations suggest a 95.7% probability of the BOJ maintaining rates at its March 19 meeting, but there is a 21.2% likelihood of a rate hike in May.
Investors will be paying close attention to Japan’s “shunto” spring wage negotiations, as they could influence the Bank of Japan’s upcoming interest rate decisions. These talks are scheduled to kick off in February, with significant corporate responses anticipated around mid-March.
According to a Reuters report, the president of the Japanese Trade Union Confederation, known as Rengo, emphasized in January that annual wage hikes for 2025 must exceed the previous year’s 5.1% increase due to ongoing declines in real wages.
