Japan’s service-sector sentiment declined for the second consecutive month in February, reflecting the growing impact of rising living costs on consumer spending, Reuters reported.
According to the government’s monthly “economy watchers” survey, the sentiment index for service-sector firms, including taxi drivers and restaurants, fell to 45.6, down 3.0 points from January and marking the lowest level since July 2022.
The survey highlighted that rising prices and heavy snowfall in some regions dampened consumer activity. A department store in central Japan reported a drop in visitor numbers due to cold weather, whereas a transportation firm in southern Japan noted that consumers were cutting back on spending due to soaring fuel costs and inflation.
Japan’s core consumer inflation reached 3.2% in January, the highest level in 19 months and exceeding the Bank of Japan’s 2% target for nearly three years. Companies continue to pass on rising costs to consumers, further straining household budgets.
However, despite steady wage increases, inflation-adjusted real wages fell by 1.8% in January compared to the previous year, reducing consumers’ purchasing power.
The government described the service-sector sentiment as showing a “moderate recovery trend,” but acknowledged the emergence of “some weak signs.” The assessment was more cautious than in January, when the government noted a continued moderate recovery.
While the Bank of Japan has maintained ultra-loose monetary policies to support economic growth, the rising cost of living has offset wage gains, leaving households with less disposable income.
The government and policymakers will need to address the dual pressures of inflation and weak consumer sentiment to sustain economic recovery. As Japan navigates these economic headwinds, the service sector’s performance will remain a key indicator of the country’s overall economic health.
