Japan's Household Outlays Rose Ahead of Takaichi's Stimulus Plan

Japanese households increased spending in November, a positive sign for Prime Minister Sanae Takaichi, who recently pushed through a major fiscal stimulus plan. The rise in outlays followed a period of cautious consumer behavior amid high inflation. The government's stimulus package includes price relief measures and steps to support wage growth.

Household outlays adjusted for inflation rose 2.9% year-over-year, surpassing expectations of a 1% decline. Spending on transportation and communications saw the most significant increase, growing by 20.4% compared to the previous year.

The Ministry of Internal Affairs and Communications reported that outlays for education rose 10.2%, and spending on clothes and household goods also increased. However, outlays on rents declined. Food spending edged up 0.9%, while alcohol spending fell.

Why Did This Happen?

The increase in household outlays is partly attributed to the government's stimulus plan, which passed in December. The package aims to provide relief on energy costs and support wage growth, with effects expected to show in early 2026.

The stimulus includes a wide range of measures, including price relief and steps to support wage growth. The prime minister emphasized the importance of people feeling the impact of these measures on prices and the economy.

Consumer sentiment has improved since the pandemic, partly due to record-high stock prices. However, the gauge of consumer sentiment remains below the 20-year average.

How Are Markets Reacting?

Japan's equity market has underperformed due to rising tensions between China and Japan. The Chinese export ban on dual-use items has raised concerns about potential impacts on Japan's auto sector.

The yen has also weakened, partly due to the export controls and the Bank of Japan's rate hike outlook. The BoJ has signaled continued rate hikes, but analysts believe the government may consider intervening in foreign exchange markets to stabilize the yen.

What Are Analysts Watching Next?

Analysts are closely monitoring the impact of the stimulus package on inflation and consumer demand. The Bank of Japan is expected to hold rates steady in its upcoming policy meeting on January 23, with most anticipating the next move to come in June.

The government has also been assessing the impact of China's dual-use export ban on supply chains. While China claims the ban will not affect civilian trade, South Korea's industry ministry has warned of potential supply shortages.

The Bank of Japan is also tracking the effects of wage growth on inflation. With inflation remaining above the 2% target for over three years, the central bank is balancing rate hikes with the risk of slowing economic growth.