Consumers are closing their wallets as the economy's outlook darkens, making it harder for Prime Minister Yoshihiko Noda to stave off the nation's third recession in four years.
Households are holding the most cash since 2005, shunning risk as they grow gloomier, Bank of Japan data indicate. Sliding private consumption contributed to an annualized 3.5 percent decline in gross domestic product in the past quarter, a Cabinet Office report showed Monday.
While Noda may avoid a fiscal cliff as the opposition becomes increasingly open to a deal on deficit-financing legislation, the consumer malaise highlights the challenge of reviving growth in the world's third-largest economy. At the same time he tries to rebuild relations with China to support exports, Noda may need to come up with more incentives for consumer purchases at home.