Japanese consumer spending likely to regain momentum in FY15 – Nomura

FXStreet (Barcelona) - Japan Economists at Nomura, note that Japanese Consumer spending is likely to regain momentum gradually in FY15, although caution is required in the near term.

Key Quotes

“The recovery in consumer spending remains muted even though more than a year has passed since the April 2014 consumption tax hike. We expect that real consumer spending in the 2015 Q1 GDP figures will be flat q-q. We estimate Q1 real consumer spending (annualized) at around the same level as that seen in 2012 Q4, when Prime Minister Shinzo Abe came into office. Thus, the rebound in consumer spending since the consumption tax hike would appear to have been so sluggish as to suggest that consumption tax might in fact have shifted down a level.”

“We see a possibility that the reactive decline following the sharp rise in demand might continue to act as a damper on consumer spending in the near term.”

“However, we think we can see light at the end of tunnel, as only one-third of this reactive decline has yet to materialize, in our view. We do not think it is realistic to expect the reactive decline in response to the earlier sharp rise in demand to continue to depress consumer spending over a long period.”

“We expect the dampening effect of the reactive decline to fade away by end-FY15 at the latest. This should mean that the fundamentals will become increasingly important in terms of assessing the outlook for consumer spending.”

“We expect a tailwind for real incomes in FY15 in the form of the increase in basic wage hikes in the spring wage offensive and the slowdown in inflation as a result of weak crude oil prices.”

“We think consumer spending will gradually regain momentum in FY15 as the impact of the reactive decline fades.”