Private Consumption Resilience Amid High Oil Prices

Mizuho argues that Japanese private consumption will remain resilient despite higher oil prices due to government price subsidies and a breakdown in the correlation between consumer sentiment and spending.

Key Takeaways

• 1.Government subsidies on gasoline, electricity, and piped gas are significantly muting the inflationary impact of higher crude oil prices on Japanese households.
• 2.The historical correlation between consumer sentiment and actual household spending has broken down since 2022, suggesting spending may remain resilient despite falling confidence indices.
• 3.Real wage growth is expected to remain positive through the end of 2026, supported by 3% growth in total cash earnings and government price controls.

Table of Contents

• (1) Government price controls limiting the impact of higher crude oil costs
• (2) Households likely to keep spending even as sentiment deteriorates?
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