By Leika Kihara
TOKYO (Reuters) – Japan’s service-sector sentiment improved in December but companies expect conditions to sour ahead, a government survey showed on Tuesday, a sign the rising cost of living was weighing on household spending.
Separate data showed corporate bankruptcy cases hit a decade-high last year due partly to rising raw material costs and an intensifying labour shortage, highlighting the strain of rising inflation on Japan’s corporate sector.
The slew of data comes ahead of the Bank of Japan’s two-day policy meeting concluding on Jan. 24, when some analysts expect the central bank to raise interest rates from the current 0.25%.
BOJ Deputy Governor Ryozo Himino said on Tuesday the central bank will debate whether to raise interest rates next week, flagging growing positive signs in Japan’s wage outlook.
“The likelihood of Japan’s economy moving in line with our projection is heightening gradually,” he told a news briefing.
An index measuring sentiment among service-sector firms, like taxi drivers and restaurants, stood at 49.9 in December, up 0.5 point from the previous month in a second straight month of increases, the government’s “economy watchers” survey showed.
But a gauge of firms’ sentiment on the economic outlook fell 0.6 point to 48.8, as higher prices of fuel and food weighed on consumption, the survey showed.
The “economy watchers” survey is closely watched by markets as a leading indicator of household spending and the broader economy, due to the polled firms’ proximity to consumers.
A separate survey by private think tank Teikoku Databank released on Tuesday showed corporate bankruptcy cases totaled 9,901 in 2024, up 16.5% from the previous year to mark the highest level since 2014.
Japan’s economy expanded an annualised 1.2% in the three months to September, slowing from the previous quarter’s 2.2% increase, with consumption up a feeble 0.7%.
Core inflation remains above the BOJ’s 2% target for nearly three years due partly to rising import costs from a weak yen.
Policymakers hope that workers’ regular pay, which recently has been rising at an annual pace of 2.5% to 3%, keeps increasing and supports consumption. While rising wages would underpin consumption, they would squeeze smaller firms that are unable to earn enough profits to retain workers via pay hikes.