Japan's real household spending posted its 11th straight drop on the year in January, down 6.3 percent (worse than the consensus call of a 4.3 percent drop) after a 2.5 percent dip in December, as consumers remain frugal amid high costs and car purchases slipped in the wake of suspended vehicle output over a safety test scandal. The sharp decrease was also led by lower spending on home maintenance and repairs, a volatile factor.

On the month, expenditures fell 2.1 percent for a fourth consecutive decline, after falling 0.5 percent (revised up from a 0.9 percent drop) in December, which was also weaker than the median forecast of a 0.5 percent rise.

Consumers are seeking lower prices for goods and services including prevalent discount mobile phone plans while the Covid-era necessity has simplified ceremonies and lowered their costs. But at the same time, the sharp drop in overall spending in January was also due to what ministry officials see as temporary factors. People spent less on tours as the government's economic stimulus measure to subsidize domestic travel that began in October 2022 wound down toward the end of 2023. Mild winter weather also led to lower spending on utilities.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, fell 4.3 percent on the year in January, smaller than the 6.3 percent drop in overall spending, after falling 3.4 percent in December (down 2.5 percent overall).

The average real income of households with salaried workers posted the 16th straight year-over-year drop, down 2.1 percent in January (but up 0.3 in nominal terms), with the pace of decrease easing from a 7.2 percent slump in December (down a nominal 4.4 percent). The main bread-earner's real income in the average household marked the 13th straight year-over-year drop while the average spouse real income posted the ninth straight drop.

Econoday's Relative Performance Index stood at plus 15, above zero, which indicates the Japanese economy is performing slightly better than expected after outperforming with a wider margin recently. Excluding the impact of inflation, the RPI was at minus 9.

Both the government and the Bank of Japan have been providing stimulus to help the economy recover and prevent prices from slipping back into deflation. Real wages have been falling for nearly two years but the year-over-year decline decelerated to 0.6 percent from December's 2.1 percent.

Japan's real household spending is forecast to post its 11th straight drop on the year in January, down 4.3 percent, after falling 2.5 percent in December, as consumers seek discounts on goods and services amid high costs for daily necessities and falling real wages while the Covid-era necessity has simplified ceremonies and lowered their costs. On the month, expenditures are forecast to rise 0.5 percent for the first increase in four months after a 0.9 percent dip in December, when relatively mild weather dampened demand for winter clothing and heaters.

In its monthly economic report for February, the government downgraded its overall assessment for the first time in three months, although it still expects a moderate recovery to continue. It also downgraded its view on private consumption for the first time in two years, saying the pickup in consumption is"pausing."

Household Spending is an important gauge of personal consumption, which accounts for roughly 55 percent of Japan's gross domestic product. It is part of the monthly Family Income and Spending Report.

The report looks at spending of households and gives a picture of consumer spending. Increases in household spending are favorable for the Japanese economy because high consumer spending generally leads to higher levels of economic growth. Higher spending is also a sign of consumer optimism, as households confident in their future outlook will spend more. The preferred number is the change from the previous year. The data are part of the family income and expenditure survey which is released at the same time as the employment and unemployment data.