The Zhitong Finance App learned that the Bank of Japan said that due to the continued shrinking population, it is difficult to achieve strong growth in overall consumption in Japan, but this also means that the overall slump in consumption itself does not necessarily indicate weakening household demand.
The Bank of Japan said in its full quarterly outlook report released on Monday: “From a demographic perspective, it should be noted that, first, it is difficult to expect total private consumption to grow strongly as a trend.” “Specifically, the rate of decline in Japan's population has been accelerating since around 2020.”
Japan's Ministry of Internal Affairs and Communications reported in September that Japan's population in 2025 is down 2.5% from five years ago. This is the fastest decline since records began in 1920, and is about three times the drop in 2020.
Private consumption accounts for about half of the Japanese economy, so its strength or weakness is a key factor for the Bank of Japan to consider when weighing another rate hike. The market generally expects the central bank to act in December. After the interest rate hike in September last month, the policy committee led by Governor Kazuo Ueda kept interest rates unchanged last week.
Agencies such as BNP Paribas and the Dai-ichi Life Economics Research Institute expect that the third-quarter GDP data scheduled to be released on November 16 will show a decline in consumer spending. Although this will be the first decline in more than two years, the Bank of Japan's analysis shows that this drop alone may not be enough to indicate that the economy is weak enough to prevent further interest rate hikes.
Thanks to continued recovery, Japan's economy has expanded to a record high, yet overall consumer spending is still below pre-pandemic levels. Estimates released by the Bank of Japan on Monday help explain this differentiation: at the beginning of this year, per capita consumption was about 4% higher than in 2015, while total consumption remained almost flat.
These data highlight that it is becoming increasingly important for policymakers to distinguish between weakness caused by worsening household needs and sluggishness caused solely by a shrinking population when evaluating the economy.
The Bank of Japan will release its next policy decision on December 18.