Nov. 12 (Bloomberg) -- Japan consumer confidence dropped in October the most since a record earthquake in 2011, showing the challenges Prime Minister Shinzo Abe faces in sustaining a recovery in the world’s third-biggest economy.
A sentiment index unexpectedly fell 4.2 points to 41.2, with gauges of views of livelihoods, employment, and incomes declining, the Cabinet Office said today in Tokyo. A typhoon in mid-October around the time the survey was conducted may have lowered the consumer mood.
Abe needs to maintain economic momentum so far driven by fiscal and monetary stimulus ahead of an April increase in the sales tax that he announced on Oct. 1. Growth is forecast to slow to an annualized 1.7 percent in the third quarter from 3.8 percent in the previous three months, according to a separate Bloomberg survey.
“The decision to raise the sales tax has hurt consumer sentiment,” said Shuichi Obata, senior economist at Nomura Securities Co. in Tokyo.
The sentiment index was forecast to rise to 45.5, according to a survey of five economists by Bloomberg News.
The survey showed an increase in concern about a rise in the cost of living. The proportion of respondents that expect prices to rise at least 5 percent in a year increased to 30 percent from 23 percent in September. Ninety percent of respondents forecast prices will be higher in a year, up from 88 percent the previous month.
Abe is balancing the need to improve the fiscal health of a country with the heaviest debt burden in the world against a goal of ending 15 years of deflation and boosting growth. His reflationary policies pushed down the yen, lifting profits of Japanese exporters while also boosting consumer prices even as wages continue to stagnate.
The Topix index of Japanese stocks has gained 1 percent this month after advancing less than 0.1 percent in October, the worst performer among 24 developed markets tracked by Bloomberg.
Abe’s approval rating rose 2 percentage points from October to 60 percent, state broadcaster NHK said on its website yesterday.
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