Japanese Consumers Face Financial Strain as Inflation Drives Up Credit Card Spending

Japanese consumers are facing financial strain as inflation drives up credit card spending in 2024, according to a recent Financial Times report. The article notes that concerns about inflation have resurfaced, with consumer prices and producer prices rising higher last week. The Consumer Price Index (CPI) rose to 3.5% year-over-year, while core CPI remained at 3.8%. The Producer Price Index (PPI) also rose to 2.1%, its highest level since April 2023.

The rise in inflation has led to increased credit card spending by Japanese consumers, putting financial strain on households. A survey found that more than half of Japanese consumers would continue to buy a product at the same supermarket even if prices rose by 10%, indicating they are more accepting of price hikes than consumers in other major economies. Inflationary expectations and price tolerance are increasing in Japan, supporting the central bank's moves to normalize policy and raise interest rates further.

Why this matters: The financial strain faced by Japanese consumers due to rising inflation and credit card spending could have broader implications for the Japanese economy. As households confront higher prices and increased debt, it may impact consumer spending and overall economic growth in Japan.

The Bank of Japan's policy review on Friday is expected to concentrate on the upside risks to inflation, with the central bank aiming to achieve its sustainable inflation target of 2%. Wage growth will be a key factor in anchoring inflation expectations around the BOJ's goal, as the recent inflation episode has led more firms to raise prices in Japan.

The weaker Japanese yen could also cause a spike in import costs and inflation, further impacting household spending. The Bank of Japan has warned it would increase interest rates if inflation continues rising, and upcoming inflation numbers from Tokyo will give the BoJ a glimpse of the effects of the weaker yen on consumer prices. Hotter-than-expected inflation numbers could trigger rate hike discussions at the BoJ.

Bank of Japan Governor Kazuo Ueda has said the central bank may raise interest rates again if the yen's declines significantly push up inflation, highlighting the dilemma the weak currency has become for policymakers. The yen hit a 34-year low against the US dollar last week, and while the rethink on Federal Reserve easing has led to a general repricing of global rate cut timelines, expectations for the European Central Bank and Bank of England to start cutting by mid-year are still unaltered.

Key Takeaways

• Japanese consumers face financial strain as inflation drives up credit card spending.
• CPI rose to 3.5% YoY, PPI to 2.1%, highest since April 2023, indicating rising inflation.
• Inflationary expectations and price tolerance are increasing in Japan, supporting BOJ policy normalization.
• Weaker yen could spike import costs and inflation, impacting household spending.
• BOJ may raise rates again if yen's decline significantly pushes up inflation.