Japanese Consumer Confidence Jumps to Highest Level in Over a Year

Jacob Hess

April 10, 2023

• Japan
• Consumers

Consumers are feeling a lot better in Japan after they ended last year with a sour economic perspective. Japan’s Economic and Social Research Institute reported that the consumer confidence index jumped 2.6 pts to 33.9 in March. This is the highest it has been in over a year after a dip in confidence was seen throughout 2022. The sub-indexes have all followed similar trends reaching near-term highs not seen since early 2022 and late 2021. The index tracking the overall livelihood of Japanese consumers increased 2.6 pts to 30.3, and the index tracking consumers’ willingness to buy durable goods jumped 3.2 pts to 26.4. Both the employment and income indexes saw comparable gains.

The consumer survey also asks about Japanese individuals' inflation expectations over the next year, an important measure for the Bank of Japan to track the development of one of the key drivers of actual inflation. The percentage of respondents expecting prices to “Go up” has been at all-time highs (survey data goes back to 2004) since February 2022 and remained in that territory in March where it fell just -0.2 ppts to 94.1%. The Bank of Japan does consider inflation good, but runaway inflation would be an undesirable effect of its exhaustive campaign to keep borrowing rates ultra-low. Consumers seem to think that there is a strong possibility of that as 61.1% of them responded that they expect year-ahead inflation to be 5% or more. This measure has been elevated ever since it jumped from 39.7% in February 2022 to 53.1% in March 2022. After a year, however, the measure is starting to ease as the 61.1% reported percentage is a -5.7 ppts decline from the all-time high set in February 2023.

These results are the first that the new Bank of Japan governor, Kazuo Ueda, will get to digest before he considers how to leave his mark on Japan’s monetary policy. For now, it seems that he will maintain the current state of things, but the recent developments in inflation should have him and his peers looking to normalize policy as soon as this year. A rebound in consumer confidence and the general Japanese economy will give the BoJ some support to make that decision to reduce some of its quantitative easing. The recent surge in inflation expectations will provide the impetus for making this decision sooner rather than later since a feedback loop can develop between expectations and actual price changes which make inflation harder to control.