Japan’s household spending fell at its fastest rate in nearly two years in October, raising concerns about the strength of consumer demand as the Bank of Japan (BOJ) considers a potential interest rate hike this month.

Government data revealed a 3.0% year-on-year decline in spending, marking the first drop in six months and far exceeding expectations of a 1.0% increase. On a month-on-month basis, spending declined by 3.5%, contrary to forecasts for a modest rise.

The weakness was mainly seen in food, leisure, and auto-related sectors. However, officials warned it is too early to conclude that consumption has stalled, emphasising that overall demand remains in a “recovery stage.”

This data comes at a critical time for the BOJ. Policymakers have held rates steady since January to evaluate the impact of US tariffs. Yet, persistent inflation and a weak yen have led the board to prepare for a possible rate increase on 19 December. Economists caution that subdued consumer spending could constrain the extent of further tightening after this month.

Earlier developments provide additional context: the BOJ has secured support for the December rate hike, though the long-term interest rate path remains uncertain. Meanwhile, Japan’s metalworkers union is pushing for larger wage increases, reinforcing expectations of BOJ tightening. Finance Minister Katayama has also stated that the government will closely monitor market developments.

Original Source: Eamonn Sheridan of investinglive.com