By Leika Kihara
TOKYO (Reuters) – Japanese households’ confidence in the economy worsened to a five-year low in the three months to December, a central bank survey showed on Thursday, adding to a recent slew of gloomy signs for the fragile recovery.
The ratio of households who expect prices to rise a year from now also slid to a more than two-year low, underscoring the challenge the Bank of Japan faces in firing up inflation to its elusive 2% target.
A diffusion index measuring households’ confidence in the economy stood at minus 29.8 in December, the worst reading since the corresponding month of 2014, the quarterly survey showed.
The survey, conducted for about a month to Dec. 3 on 4,000 households, also showed that 32.9% of respondents cut back on spending after a sales tax hike in October.
Households curbed spending on dining out, clothing and daily necessities after the tax increase, the survey showed, highlighting the toll that the higher levy was taking on private consumption.
Asked how prices were moving when excluding the impact of the sales tax hike, 64.5% said prices rose from a year ago, down from 70.5% in the previous survey.
Of the total, 73.3% expect prices to rise a year from now, down from 79.8% three months ago and the lowest level since September 2017, the survey showed.
Japan’s economic growth ground to a near halt in July-September and is likely to have contracted in the final quarter of last year as the U.S.-China trade war knocked exports.
The BOJ is likely to revise up slightly its economic forecast for the fiscal year starting in April to reflect an expected boost from the government’s $122 billion spending package, sources have told Reuters.
But many analysts expect inflation to remain subdued as slow wage growth keep households from loosening their purse strings.
Annual core consumer inflation stood at 0.5% in November, remaining distant from the BOJ’s 2% target.
(Reporting by Leika Kihara; Editing by Clarence Fernandez & Kim Coghill)