Japan Data

Recent Price Rises Hit Low-Income Households in Japan Hard

Economy Lifestyle Society

In the face of the rising prices of food and gas in Japan, the director of the Bank of Japan, Kuroda Haruhiko, made a controversial statement (later retracted) that “households are becoming more tolerant of higher prices.” However, a study conducted by a private research firm has found that the burden on low-income households of the recent inflation is equivalent to a 3% rise in the consumption tax.

Research firm Mizuho Research and Technologies estimated the impact of rising food and energy prices on different income brackets in Japan, based on the assumption that the price of crude oil will be approximately $108 per barrel and the exchange rate will remain at around ¥135 per US dollar. In addition, the study assumed the core consumer price index (excluding volatile fresh food) will continue to rise year on year by around 2%.

According to the forecast, even if the government extends beyond September the drastic easing measures, such as subsidies to keep fuel prices below a certain point, household expenditures in 2022 are still expected to increase on average by about ¥65,000 per household. The breakdown by income bracket shows that the increase will be an addition of only 0.6% for high-income households with annual incomes exceeding ¥10 million, but will be an extra burden of as much as 2.2% for low-income households with annual incomes of less than ¥3 million, nearly equivalent to the impact from a 3% rise in the consumption tax.

Although there is a slight gap between these figures, the 2.2% increase is roughly equivalent to the 2.4% increased burden on households in that same income bracket that would result from raising the consumption tax by 3% (taking into account items that would be exempt from taxation).

Increased Burden of Fuel/Energy Price Rises by Income Bracket

Annual income Additional annual household spending (¥) in 2022 Increased burden (%)
Less than ¥3 million 51,901 2.2
¥3 million–¥4 million 57,796 1.7
¥4 million–¥5 million 62,562 1.4
¥5 million–¥6 million 64,873 1.2
¥6 million–¥7 million 67,100 1
¥7 million–¥8 million 68,035 0.9
¥8 million–¥9 million 72,012 0.9
¥9 million–¥10 million 74,347 0.8
Over ¥10 million 79,585 0.6
Overall average 64,697 1

Compiled by Mizuho Research and Technologies based on a household survey conducted by the Ministry of Internal Affairs and Communications. It is assumed that the extreme fuel subsidies will continue to the end of 2022. The burden percentage is proportionate to annual income.

Mizuho Research and Technologies also found that the perception among consumers of price rises increased rapidly in 2022, based on its quantification of consumer sentiment, centering on a survey of lifestyle awareness conducted by the Bank of Japan. Meanwhile, nominal wages have remained flat, so that the gap between wages and prices has widened significantly.

Sakai Saisuke, the chief economist for Mizuho Research and Technologies, noted the following: “It might seem that that increased household savings resulting from reduced consumption during the pandemic would provide a buffer against rising prices, but that is only the case for high-income households. Workers in the service sector have seen their incomes fall sharply during the COVID-19 pandemic, making it difficult for them to build assets. Pensioners without sufficient savings have to rely on their pension benefits for income, so higher prices for daily necessities such as food has a major impact on their budgets.”

(Translated from Japanese. Banner photo © Pixta.)

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