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Japan’s consumer confidence plunges to 5 year lows in April amidst worries over higher prices

Last month, we reported a a slight rise in Japan’s consumer confidence levels, though it was not seen as indicative of a truly more optimistic view of the economy amongst consumers. Last Friday, the Cabinet Office reported that consumer confidence had taken a turn for the worse again in April.

April’s numbers seem dire indeed: The overall consumer confidence score fell from 36.7 points to 35.2, which was lower than the 36.1 seen in February. April’s score was the lowest since 34.7 was registered in March 2003.

The Consumer Confidence Index generates five scores, each of which is considered positive when above 50, and pessimistic when below the 50 mark. Here’s a breakdown for March’s figures, with the change from last month:

• Consumer Confidence Index: 35.2 (-1.5)
• Overall Livelihood: 33.0 (-1.4)
• Income Growth: 37.5 (–1.2)
• Employment: 36.0 (-1.6)
• Willingness to buy durable goods: 33.2 (-2.0)

These are some strong drops. We need to keep in mind that although every category except for Employment rose in March, the falls in April brought them back under their February levels. The Overall Livelihood score is at its lowest level ever, Income Growth and Employment are at their lowest levels since December 2003, and Willingness to Buy Durable Goods fell to its lowest level since March 1997.

A year ago, the overall consumer confidence score stood at 47.4. Since then, it has fallen in 10 of the past 12 months, showing a 0.1 point rise in September 2007 and a 0.6 point rise in March 2008.

The Employment score is 15.7 points lower than a year ago, while Willingness to Buy Durable Goods has fallen 15.2 points.

As we noted a few weeks ago, household spending on durable and semi-durable goods in Japan fell 3.65% in February and 10.41% in March. With April’s figures just around the corner, it will be interesting to see if the decline in actual spending has been constrained, or if the expectation of lower summer bonuses will eat further into big-ticket spending.

Speaking of durable goods, it seems as though car prices will be certain to rise over the coming year, as Nippon Steel gears up to push a record price increase of 25,000-30,000 yen per ton of steel onto Toyota, according to Bloomberg. This will be an increase on the 80,200 yen per ton currently being charged. Nippon Steel claims that rising material costs will take a 41% bite out of annual profits. Will Toyota and other carmakers now be forced to pass on higher costs?

The Cabinet Office report also noted that 86.2% of respondents expect the price of goods in Japan to rise in the next 12 months. This was up 0.5% from 85.7% in March, though below the record high of 86.5% seen in February.

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