Thirty Days of Rain, Ten Months of Decline: Japan’s Spending Slump Meets a Hawkish BOJ

Tokyo had rain on every single day of September — the first time that has happened since records began. On Tuesday, the bill for that soggy month arrived in the economic data.

Real household spending fell 6.8 percent from a year earlier, the internal affairs ministry reported, the steepest drop since September 2020, when the pandemic was keeping people at home. Economists had expected a decline of around 3 percent. On a seasonally adjusted basis, spending fell 2.8 percent from August instead of edging up. It was the tenth consecutive year-on-year decline, and transport, education and entertainment led the fall.

A ministry official put much of the blame on the weather, which kept people from going out. That explanation is plausible for a month in which outings, trips and leisure simply did not happen. But it is harder to stretch across ten months in a row.

The wage puzzle

The awkward fact for policymakers is that pay has been rising. Real wages increased for eight straight months through August, yet households are not turning that money into purchases. The likeliest reason is that living costs — energy, imported goods made dearer by a weak yen, food — are swallowing the gains, and families are cautious about what comes next. Economists also warn that the household survey uses a small sample and swings sharply, so a single print should not be over-read. The run of declines, however, is now long enough to be taken seriously.

A central bank leaning the other way

The same morning, the Bank of Japan published its summary of opinions from the 29–30 October meeting, at which it held its policy rate at 1.25 percent on an 8–1 vote. The tone was clearly hawkish. One member said the next hike should come “without becoming overly cautious”; another argued Japan is in “a new phase” requiring a faster march towards a neutral rate, since past increases have yet to bite and financial conditions remain loose.

Not everyone agreed. Several members cautioned against haste, citing soft consumption and doubts about how long AI-driven demand will last. Still, markets broadly expect a move to 1.5 percent at the 18 December meeting, keeping the roughly quarterly rhythm set by hikes in June and September.

What to watch

October data will show whether September was a weather freak or a deeper turn. If spending bounces back once the sun returns, the BOJ will feel free to proceed. If it does not, the bank risks raising mortgage and loan costs for households that are already pulling back — exactly the people its fight against inflation is meant to protect.