Japanese consumers squeezed by stagnant wages, rising prices

Preliminary figures from Japan's labor ministry show real wages in May were down by 1.2% from a year earlier, extending the decline to a fourteenth month.

And numbers crunched by the internal affairs ministry show household spending in May was down by 4% when adjusted for inflation, making it the third month in a row that consumption has fallen.

Year-on-year consumption is also declining.

Consumers cut back

With inflation at a near 30-year high and food prices jumping at the fastest rate in almost half a century, many are feeling the pinch. Grocery shoppers in Tokyo told NHK that financial pressures are forcing them to make sacrifices.

One woman said she can no longer afford to buy beef, and is restricting her meat purchases to chicken and pork.

Households are tightening their purse strings.

Another said she's been traveling to supermarkets further from home in search of cheaper prices.

Shop owners struggle

The situation has also put businesses in a bind.

A bakery that's been trading for 50 years just raised its prices for the first time in a decade. The owner said he resisted making the change for as long as he could, mainly by cutting back on electricity use and reducing hours for his part-time workers. Ultimately, however, it wasn't enough to offset the soaring cost of ingredients and energy.

The higher prices have barely helped, he says, because customers are simply buying less.

Shop owners are reluctantly raising prices to offset higher costs.

Some businesses are trying to be creative in their approach to the problem. A cake shop owner said that rather than raise prices for pastries that are already in her line-up, she charges more for new items and hopes they'll be popular enough to cover her costs and keep customers coming back.

Some businesses are selectively raising prices to avoid driving customers away.

Call for government support

These piecemeal solutions to a spiraling problem are not sustainable, says one economist.

Aida Takuji, Chief Economist at the Tokyo branch of Credit Agricole Securities, says consumption isn't likely to bounce back anytime soon.

Economist Aida Takuji says a cash payment to households would give the economy the shot in the arm it needs.

He says the government should consider making another cash handout to households, much like the stimulus payment it provided during the first year of the pandemic. A tax cut would also offer some much-needed relief, he says.

Aida's immediate concern is that the US economy will start to slow in the fall. He says this will only deepen economic woes in Japan by dragging down growth, and ensuring that wage hikes continue to lag behind inflation through 2024.

Unless the government steps in, he warns, the economy's gradual recovery from the pandemic could stall.