Consumer spending fell in February but at a slower than expected pace as households scrambled to buy protective masks, toilet paper and food staples amid the worsening COVID-19 pandemic.
But spending on travel and entertainment slumped, according to government data released Tuesday, in a sign households were cutting back on nonessential purchases even before travel bans and social distancing policies took effect in March.
Analysts expect the hit to consumption from the pandemic to deepen significantly in coming months, with Prime Minister Shinzo Abe set to declare a state of emergency Tuesday that is likely to paralyze activity in major cities, including Tokyo, for a month.
“This pandemic is an unprecedented type of economic crisis that deals an immediate blow to consumption and jobs,” said Yasuhide Yajima, chief economist at NLI Research Institute. “We’ll likely see a free fall in consumption in March and beyond of a scale never experienced before. In a crisis like this, Japan has little choice but to embark on helicopter money like other major economies.”
Household spending slid 0.3 percent in February from a year earlier, marking the fifth straight month of declines but a smaller drop than a median market forecast for a 3.9 percent decline and the 3.9 percent fall marked in January.
Spending on toilet paper jumped 47 percent in February from a year earlier, while sales of domestic package tours slumped 37 percent by value.
Supply chain disruptions, travel bans and social distancing policies triggered by the pandemic have hit the Japanese economy, which was already on the brink of recession, piling pressure on policymakers to take stronger steps to ease the pain.
Abe said Tuesday the government’s stimulus package to combat the pandemic would be among the world’s biggest and would include direct fiscal spending of ¥39 trillion ($358 billion).
It was the first time he has unveiled the scale of direct spending in the package, which he said would total ¥108 trillion — equal to 20 percent of economic output.
The ¥39 trillion in spending would be more than double what Japan spent to deal with the hit to growth from the collapse of Lehman Brothers in 2008.
While the stimulus could ease immediate damage from the pandemic, lawmakers are already calling for even bigger spending to prevent bankruptcies and job losses.
With the government set to boost bond issuance to pay for the package, the Bank of Japan could ramp up bond buying to keep borrowing costs low, said Yajima of NLI Research Institute.
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.