Consumer confidence fell in March to the lowest level since August 2011, and the government cut its economic assessment for the first time in 17 months, as the April 1 consumption tax hike sapped the public’s spending power.
The reading of 37.5, down from 38.5 in February, was released by the Cabinet Office on Thursday. About 90 percent of respondents to the survey expect prices to rise over the next 12 months, the highest since 2004.
Prime Minister Shinzo Abe risks the public souring on his campaign to sustain growth in the world’s third-biggest economy as prices rise while wages stay stagnant. Weak consumer sentiment could make it harder to drive a rebound from a contraction forecast this quarter, while simultaneously increasing the chances the Bank of Japan will add to its unprecedented monetary easing.
“Consumer sentiment has been undermined to a large extent by rising prices,” Goldman Sachs Group Inc. economists Naohiko Baba and Yuriko Tanaka wrote in an e-mail ahead of the release. “We expect a major retreat in sentiment from April as the tax hike drives inflation.”
The confidence reading was 39.9 when Abe took office in December 2012, and rose to 45.7 in May last year — the highest point during his current term as prime minister. Confidence dropped in all five components in the survey, with willingness to buy durable goods dropping the most, down by 2 to 30.8.
The government on the same day cut its view of the economy in April, the first lowering of its assessment since November 2012. The downgrade was due to lower evaluations of private consumption, housing construction, imports and industrial production, an official said at a briefing.
Shoppers rushed to stores before the tax hike, with department store sales nationwide jumping 25.4 percent in March from the previous year — the biggest gain since at least 1991, according to data compiled by Bloomberg.
On Thursday, the BOJ kept its assessment of eight of nine domestic regions unchanged in its Sakura Report for April. The economies of all the regions “continued to recover or had been recovering moderately,” while there had been some effects from the subsequent fall-off in demand after the sales tax hike, according to the report.
The 3-point increase in the sales tax is set to trigger a 3.4 percent slide in annualized gross domestic product in the April-June period before rebounding the following quarter, according to a Bloomberg News survey. Wages, excluding overtime and bonuses, fell for the 21st straight month in February, while core consumer prices, which exclude fresh food but not energy, rose 1.3 percent from a year earlier.
Koichi Hamada, an adviser to Abe on monetary policy, said in an interview last month the central bank should add stimulus as early as May should indicators show the tax increase is seriously damaging the economy.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.