By Leika Kihara
TOKYO, April 9 (Reuters) – Japan’s consumer confidence worsened in March at a pace unseen since the COVID-19 pandemic in 2020, a government survey showed, swelling the toll on a fragile economy from soaring fuel costs caused by the Middle East conflict.
The findings underline recent data fleshing out the potential economic hit from the Iran war, which complicates the Bank of Japan’s decision whether to raise interest rates at its next policy meeting on April 27 and 28.
BOJ Governor Kazuo Ueda stressed that real borrowing costs remain negative, but analysts say uncertainty over a fragile ceasefire between the United States and Iran could keep markets volatile and hurt economic activity.
“When sentiment is worsening so much, you would want to check whether the downturn will prove temporary,” said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, adding that entailed waiting for a few months’ worth of data.
“I doubt the BOJ would raise rates in April,” he said. “It would be a risky move to take when uncertainty is extremely high.”
An index measuring consumer mood hit a nearly one-year low of 33.3 in March, down 6.4 points from February, the survey showed on Thursday, for the biggest month-on-month drop since April 2020, when the COVID-19 pandemic was rattling the world.
“Consumer sentiment is weakening,” the government said, revising down its assessment. In the February survey, it said confidence was showing signs of improvement.
Sentiment was probably hurt by households’ concern over rising inflation and fuel costs, a government official told a briefing.
The survey also showed 93.1% of households expect prices to rise a year from now, up 7.5 points from February, with 53.4% of these seeing a rise of 5% or more.
The survey ran from March 6 and March 23, when crude oil prices soared from the escalating Middle East conflict triggered by the U.S.-Israel attack on Iran on February 28.
FIRMS PREDICTING MORE PAIN
Markets have been rattled after the Iran war effectively shut the Strait of Hormuz, a chokepoint for about a fifth of global oil and gas flows, leading to a spike in oil prices.
Another poll by private think tank Tokyo Shoko Research showed 78.7% of firms expect a negative impact on their businesses from the conflict.
Many cited rising costs of raw materials and gasoline prices as the biggest factor affecting earnings, in the survey done between March 31 and April 7.
The surveys will be among factors the BOJ will scrutinise at this month’s policy meeting, when its board will conduct a quarterly review of growth and price projections key to the pace and timing of future rate hikes.
Hawkish rhetoric has featured in the BOJ’s groundwork for a near-term rate hike, as the weak yen and the Iran war pile inflationary pressure on the economy.
Governor Ueda has made clear the door remains open to further rate hikes, so long as a modest economic recovery keeps inflation on track to durably hit the bank’s 2% target.
Many market players expect the BOJ to raise rates in April, June or July, dependening on how long the conflict persists.
The BOJ ended a massive, decade-long stimulus in 2024 and raised interest rates several times, including in December, when it took its short-term policy rate to a 30-year high of 0.75%.
(Reporting by Leika KiharaEditing by Shri Navaratnam and Clarence Fernandez)
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