TOKYO: Japan's consumer spending fell in February but at a slower-than-expected pace as households scrambled for protective masks, toilet paper and staple food amid the worsening coronavirus pandemic.

But spending on travel and entertainment slumped, government data showed on Tuesday (Apr 7), a sign households were cutting back on non-essential purchases even before travel bans and social distancing policies took effect in March.



Analysts expect the hit to consumption from the pandemic to deepen significantly in coming months, as Prime Minister Shinzo Abe declares a state of emergency on Tuesday that is likely to paralyse activity in major cities, including Tokyo, for a month.

READ: Japan to declare state of emergency for about a month: PM Abe

"This pandemic is an unprecedented type of economic crisis that deals an immediate blow to consumption and jobs," said Yasuhide Yajima, chief economist at NLI Research Institute.

"We'll likely see a freefall in consumption in March and beyond of a scale never experienced before. In a crisis like this, Japan has little choice but to embark on helicopter money like other major economies," he said.



Household spending slid 0.3 per cent in February from a year earlier, marking the fifth straight month of declines but a smaller drop than a median market forecast for a 3.9% decline and the 3.9 per cent fall marked in January.

Spending on toilet paper jumped 47 per cent in February from a year earlier, while that on domestic package tours slumped 37 per cent.

Supply chain disruptions, travel bans and social distancing policies triggered by the pandemic have hit Japan's economy, which is already on the brink of recession, piling pressure on policymakers to take stronger steps to ease the pain.

Abe said on Tuesday the government's stimulus package to combat the pandemic would be among the world's biggest and would include direct fiscal spending of US$358 billion.

It was the first time the premier unveiled the size of direct spending of his package, which he said would total 108 trillion yen - equal to 20 per cent of economic output.

The 39-trillion-yen (US$358 billion) in spending would be more than double what Japan spent to deal with the hit to growth from the collapse of Lehman Brothers in 2008.

READ: What does a state of emergency mean for Japan?



While the stimulus could ease the immediate damage from the pandemic, lawmakers are already calling for even bigger spending to prevent bankruptcies and job losses.

With the government set to boost bond issuance to pay for the package, the Bank of Japan could ramp up bond buying to keep borrowing costs low, said Yajima of NLI Research Institute.

Analysts expect Japan's economy, which shrank in the final quarter of last year, to post two more quarters of contraction as the pain from the pandemic deepens.

Separate data showed inflated-adjusted real wages rose for a second straight month in February, providing some relief for an economy under threat of a deep downturn over the pandemic.

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